Question

Avoiding pro rata rule

Forum|Forum|6 years ago
March 31, 2020
1 reply
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I'm planning a backdoor Roth conversion in 2020 and I currently have pre-tax funds in my traditional IRA account (from previous years when my contributions were deductible).

Is it correct to assume that in order to avoid the pro rata rule, the balance on my traditional IRA needs to be $0 by the end of the year in which I do the Roth conversion?

If this is true, then can I roll the pre-tax funds into my employer 401k to bring the balance of the traditional IRA down to $0 (as long as my employer 401k accepts rollovers)?

macuser_22

Employee

You are correct.

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts. If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself. Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

And yes, it is possible to roll pretax money to an employers 401(k) (after-tax money cannot be rolled into a 401(k)), if the employer plan allows it - not all do.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**