Yes, she will have to pro-rata rule applied until the traditional IRA is $0. Yes, it wouldn’t make sense to do the rollover if she can avoid it.
She can only get rid of the basis if she converts the full amount and her account is $0 but that would mean an increase in taxable income. She could covert the current balance in the traditional IRA in 2023 and then in 2024 rollover the 401k if you are fine paying taxes on the taxable conversion amount.
If she rolls over her 401k account, she could convert it each year in small amounts (to lessen the tax impact) or wait until you both are retired and have less taxable income (are in a lower tax bracket) and then take either distributions or convert it. Or she has to keep the 401k.
@dhuynh44
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
