I have a single Traditional IRA account. It consists of the following: pre-tax (deductible) contributions, after-tax (non-deductible) contributions, pre-tax gains, and pre-tax rollover funds from previous 401Ks. At a minimum I'd like to convert the non-deductible basis to a Roth IRA, but I also want to avoid the tax implications of doing so (pro-rata rule) because the balance is ~$400,000.
My plan is as follows. Can anyone help me understand if I'm oversimplifying this or if I'm missing something critical? I want to avoid the IRS SWAT team busting into my house.
- Identify the non-deductible basis by referring to every past year's Form 8606 and add it all up.
- Subtract the sum of the non-deductible basis from the total balance of the IRA.
- Reverse rollover the resulting pre-tax amount into a 401K.
- Convert the remaining non-deductible amount to a Roth IRA.
I'm hoping this plan will 1) accomplish my minimum goal of converting non-deductible basis to Roth and 2) set me up for future backdoor Roth activity if necessary.
Good? Bad? Ugly? Thanks in advance.
Isolating non-deductible basis from Traditional IRA
byu/Accomplished_Use4271 intax
Posted by Accomplished_Use4271
2 Comments
Sounds exactly right to me, with the slightly caveat that you should only need your most recent Form 8606 because it includes the basis from previous years already.
That’s basically right, assuming your 401k allows such incoming rollovers. Also, you don’t have to add up every past year’s Form 8606 to get the current basis. Line 14 of the most recent Form 8606 contains the cumulative basis as of the end of that year, assuming you followed the instructions correctly. Then you’d just need to add any nondeductible contributions you’ve made since the end of that year to get the current total.