Question about backdoor roth ira

Forum|Forum|1 year ago
February 20, 2025
1 reply
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I have a rollover IRA in Vanguard since 2008 lets say having 20 k.

I create a new traditional IRA in 2024 in Vanguard and fund 7k . Let s say it has 8k now after gains in 2025, i want to convert this account into Roth IRA .

What are the tax implications for the Rollover IRA which have had since 2008. Does any tax apply to the 20k in the Rollover IRA which i have had since 2008, when i do the conversion of new Traditional IRA into Roth IRA?

ThomasM125

No, the funds you roll into the new Roth IRA will be taxable but it won't affect the other traditional IRA in any way.

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ccnanAuthor

Thanks , I was reading this article : https://smartasset.com/retirement/a-guide-to-the-pro-rata-rule-and-roth-iras

where it says "This rule requires you to consider all your IRA accounts as a single entity when calculating taxes owed on a conversion. Essentially, if you have both pre-tax and after-tax contributions in your IRAs, the pro rata rule mandates that any conversion must include a proportional amount of both. " Hence i raised this question.

AnnetteB6

There is not a specific amount of tax that will apply to the rollover IRA containing $20k. However, since that $20k is presumably pre-tax contributions and your newly created Traditional IRA account funded with $7K is non-deductible, after-tax contributions, the total value of all of your Traditional IRA accounts ($20K + $7K + $1K) will be taken into account when calculating the amount that will be taxable if you convert the newly created IRA to a Roth IRA.

That is what the pro-rata rule is trying to say. Using the formula in the article that you linked, your situation would be this:

$7K / $28K = non-taxable percentage (based on my assumption that the $7K is a non-deductible contribution)

The rollover IRA will still be there and it will still have zero basis (if it was all pre-tax contributions) after the Roth IRA conversion.

@ccnan

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