Yes, the reverse rollover would be her best option (if allowed).
Yes, if you do a reverse rollover this isn’t taxable but will be reported on your 2023 tax return. This will free up the $4,856 basis which you could then convert tax-free to the Roth IRA in 2023. Then in 2024 she could rollover her 401k back into the traditional IRA.
If she converted the full current amount of $16,000 (with the value of $0 on December 31, 2023) then $11,144 would be taxable income and taxed according to your 2023 tax bracket.
Yes, she could make deductible IRA contributions and keep the basis in the traditional IRA. Later when she takes distribution each distribution will have a taxable and nontaxable part because of the pro-rata rule.
Yes, she doesn’t have to convert to Roth, she can just keep the funds in the traditional IRA and later just take distributions when she reaches the retirement age (each distribution will have a taxable and nontaxable part) or convert it when your combined income is lower (you are in a lower tax bracket).
@dhuynh44
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