@ccthealias wrote:
Just to clarify since my question is around back door IRA.
I have pre tax in rollover IRA which I rollover into to my employer’ 401k. The check was issued Dec 28 2023
Since my rollover from Traditional IRA to 401k was done in dec 2023. I want to know if I m eligible to do a Backdoor IRA for Tax year 2023.
Also I looked at form 5498 which is not available until May. How do I make a determination before the April 15 deadline (for backdoor IRA TY 2023)
Also the 5498 shows contributions and conversion. Since I m not contributing to traditional IRA, which line on the form should I be looking at to confirm the balance of the IRA as of Dec 31?
"Since my rollover from Traditional IRA to 401k was done in dec 2023. I want to know if I m eligible to do a Backdoor IRA for Tax year 2023."
A "backdoor Roth" conversion has two steps. You make a non-deductible contribution to a traditional IRA, and then you convert it to a Roth IRA. You can make a non-deductible contribution for the 2023 tax year up until April 15, 2024, and it will count for 2023. But you can't make the conversion in 2023, because conversions are never retroactive.
As long as you removed all the pre-tax money from the traditional IRA before the end of 2023, you can make a new contribution of non-deductible money to a traditional IRA (during January 2024 but for calendar year 2023), and when you prepare form 8606, it will show that your IRA balance is 100% after tax, because it will only contain the non-deductible contribution. But you can't then convert it in 2023, the conversion will happen in 2024.
You are correct that form 5498 won't be issued until May. However, if you received a check from the pre-tax IRA dated December 29, then the IRA will count that as a full distribution for 2023 and it will show up as a distribution on your 1099-R and on your 5498. (When you enter the 1099-R, you will tell Turbotax that you rolled the money over to another qualifying plan, so you won't be taxed on it.)
You can work through form 8606 by hand to see how the math works, here is the form and instructions.
https://www.irs.gov/forms-pubs/about-form-8606
By removing the entire balance from your IRA on December 29, and making your non-deductible contribution in 2024, you should see zero on line 5 and line 6. That will make line 7-13 all zero as well, and line 14 (your new basis) equal to the amount of your non-deductible contribution. That's what makes the "backdoor" conversion work.
So you can make a contribution in 2024 (retroactive to 2023--make sure the IRA knows this in advance so they don't code it for 2024), direct it to a cash account, wait a few days for it to settle, then convert it to a Roth IRA, and the only taxes you would pay might be on a few dollars of interest. Then you can do it again for 2024.
