Backdoor Roth IRA - Multiple Accounts and 401K

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vglifer
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Backdoor Roth IRA - Multiple Accounts and 401K

Post by vglifer »

Over the past 12 years I have contributed non-deductible IRA contributions, all tracked on IRS Form 8606. My 401K provider allows reverse rollovers. Am I able to do a reverse rollover of all my pre-tax IRA earnings (current balance - nondeductible contributions) into my 401k, leaving only after-tax money in my IRAs, and then do a big backdoor Roth IRA conversion with the after-tax money and avoid any taxes?
Alan S.
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by Alan S. »

vglifer wrote: Sat Oct 16, 2021 7:19 am Over the past 12 years I have contributed non-deductible IRA contributions, all tracked on IRS Form 8606. My 401K provider allows reverse rollovers. Am I able to do a reverse rollover of all my pre-tax IRA earnings (current balance - nondeductible contributions) into my 401k, leaving only after-tax money in my IRAs, and then do a big backdoor Roth IRA conversion with the after-tax money and avoid any taxes?
Yes, and you should do it this year. Be sure your 401k plan allows rollovers from contributary IRA accounts, not just from rollover IRA accounts. If so, do a direct rollover of your IRA balance less your IRA basis at the time of the rollover. Remember to factor in your 2021 contribution properly whether you have made it yet or not and make it non deductible even if you qualify for the deduction.
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David Jay
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by David Jay »

Welcome to the forum!

Alan is a very experienced personal finance and estate professional, so "what he said".
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Tubes
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by Tubes »

I'm in the same situation and want to close out my IRAs to capture all the after tax basis through a Roth conversion.

I was able to roll my listed "Rollover IRA" to my old 401k. I just completed the process on Friday on a Vanguard IRA to Fidelity 401k. It went very smoothly. I am terminated from that Megacorp, but they generously allow roll-ins even when not an active employee. This is not common, but very nice in my case.

Since this Rollover IRA has a clear path to an old 401k from a small compay, it is a conduit IRA and clearly eligible to roll-in to my 401k. The 401k's rules about rolling in traditional IRAs is less clear so I hesitate on rolling it in, although it appears to conform to the plan rules. Luckily, the amount of my pre-tax basis fits well into my Roth conversion strategy (staying under 24% tax bracket) during retirement so I'm just going to leave that one alone to convert and accept the income. If I were still working, I definitely would roll in my pre-tax portion.
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vglifer
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by vglifer »

Can anyone recommend a tax advisor to assist with the process? I want to avoid any missteps.
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vglifer
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Tax Advisor Recommendation for Complex Backdoor Roth IRA

Post by vglifer »

[Thread merged into here --admin LadyGeek]

I’m looking for a recommendation for a tax advisor to help orchestrate a complex backdoor Roth IRA with comingled assets, reverse rollover, multiple years 8606 basis, etc. Greatly appreciate any help. Thanks!
tibbitts
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Re: Tax Advisor Recommendation for Complex Backdoor Roth IRA

Post by tibbitts »

vglifer wrote: Tue Oct 26, 2021 9:31 am I’m looking for a recommendation for a tax advisor to help orchestrate a complex backdoor Roth IRA with comingled assets, reverse rollover, multiple years 8606 basis, etc. Greatly appreciate any help. Thanks!
Wouldn't you want the same person dealing with your federal and state/local income tax this year when you're doing this, although the implications for state taxes might not be complex? Or maybe you don't have state/local income tax... but if you do you might mention what other income taxes will be involved.
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by LadyGeek »

vglifer- In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
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HomeStretch
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by HomeStretch »

+1 to doing the rollover of your IRA pretax balance(s) into your 401k and converting the remaining IRA basis to Roth IRA this year.

It may take you awhile to find a competent tax professional to assist in getting this done by year-end.

Are you sure you can’t get this done yourself? You would keep the cumulative 12/31/20 IRA basis per your 2020 Form 8606 + any 2021 nondeductible contributions in the TIRA, rollover the pretax remainder to the 401k then convert the TIRA balance to Roth IRA.

If you decide to DIY and you would like feedback on your plan, post the detail for your IRA(s) and the steps to do the rollover(s)/conversion(s). Start soon to allow sufficient time.
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vglifer
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by vglifer »

So it looks like I will be doing this myself. Question on calculating the amounts to roll into my 401k: assume as of today, I have 100k balance in my non-deductible IRA, with a basis of $71,000, leaving $29,000 to roll into my 401k. How should I account for market changes that will change my account value between now and 12/31?
HomeStretch
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by HomeStretch »

The oft-recommended method is to rollover the $29k pretax IRA balances first into the 401k and then convert the $71k basis (along with any subsequent pretax earnings which should be minimal) to Roth IRA. You want the TIRA balance to be zero at 12/31. You will owe (minimal) taxes on any pretax IRA earnings converted to Roth (the taxable portion of the conversion will be calculated on Form 8606). This method allows for a possible situation where the rollover to the 401k is delayed beyond 12/31 or is rejected/returned to the IRA. Any 12/31 pretax IRA balance will make the irreversible 2021 Roth conversion subject to pro-rated taxes.

The alternative is to first convert your $71k IRA basis to your Roth IRA and then rollover the IRA’s remaining $29k pre-tax balance plus any additional pretax earnings into your 401k. As per above, the Roth conversion is subject to pro-rated taxes if there is a glitch or delay beyond 12/31.

I did the latter a few years ago and it worked out fine. I was dealing with two major brokerages (Fidelity and Vanguard) and started the process on Nov. 1 to allow 2 months to get it done. I would have been a bit more hesitant to use the 2nd method if the 401k was sponsored by a small employer or the custodian wasn’t a major easy-to-work-with brokerage due to the possibility of delays.
Last edited by HomeStretch on Sun Oct 31, 2021 9:02 am, edited 1 time in total.
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anon_investor
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by anon_investor »

HomeStretch wrote: Sun Oct 31, 2021 8:52 am The alternative is to first convert your IRA basis to your Roth IRA and then rollover the IRA’s remaining pre-tax balance to your 401k. As per above, the Roth conversion is subject to pro-rated taxes if there is a glitch or delay beyond 12/31.
I also did this ^^^ a few years ago, it worked out fine. It was funds from my Vanguard tIRA going to my megacap employer's 401k. I did the transfer in July (plenty of time before 12/31 if there were any delays). The whole process was completed in less than 2 weeks. Vanguard was able to mail the check directly to my 401k administrator, and all paperwork was uploaded on their respective websites (scans of printed out signed forms), I did not need to mail anything.
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Re: Backdoor Roth IRA - Multiple Accounts and 401K

Post by retiredjg »

vglifer wrote: Sun Oct 31, 2021 8:20 am So it looks like I will be doing this myself. Question on calculating the amounts to roll into my 401k: assume as of today, I have 100k balance in my non-deductible IRA, with a basis of $71,000, leaving $29,000 to roll into my 401k. How should I account for market changes that will change my account value between now and 12/31?
Liquidate the account to money market. Roll everything but the basis into the 401k. The only critical thing here is to leave as least as much as the basis in the tIRA.

After the pre-tax money is in the 401k, do a Roth conversion on the tIRA. There might be a few dollars tax if any earnings have occurred. It is fine if that happens next year instead of this year.

Alternate suggestion...just convert it all and pay tax on the $29k. Do this over 2 years if the tax is too high for one year. That is only a good suggestion if $29k is a relatively small portion of your portfolio and you place high value on skipping the "reverse rollover" step.
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