IRA to Roth IRA conversion

[jawckey]

Pl. see if you can help with this.

- For a long time I have had an IRA into which I rolled over pretax 401K money from my past employers

- Over the time, I also contributed non-deductible annual IRA contributions too

- So by the beginning of 2022, my IRA had a mix of pre and post tax money in it

- I had been using Turbo Tax for many years and it maintained by tax basis etc., for post-tax contributions

- But in 2022 I made a very stupid mistake of pulling out post-tax money out of that IRA and converted that to Roth IRA without realizing the implications since I was just 63 years only :( 

- So tax bill got fat, I just have to suck it up and pay now

However when I used Turbo Tax premier to enter 1099-R, at one point it does ask me for the total IRA balance by the end of 2022 to approportionate the tax for taxable part of my total converted amount. But it is asking only for IRA balance. However, I also have 401K with the current employer. So my question is ...

- Like Turbo Tax asking for just IRA balance at the end of 2022 only

- OR do I have to add end of 2022 401K balance also?

regards

[DanaB27 · Accepted solution]

Yes, when TurboTax asks about the value on December 31, 2022, you have the enter the total value of all of your traditional/SEP/SIMPLE IRAs (it would include the amount you had rolled over into your IRA in the past). But you do not add the value that is still in a 401(k) account with your current employer.

Yes, since you had pre-tax funds from your 401k rollover into your traditional IRA now the pro-rata rule applies. This means that with each distribution/ conversion, you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. Therefore, each distribution/conversion in the future will have a taxable and nontaxable part until the basis is all used. 

If you plan to convert more funds to the Roth IRA in the future you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.

Please see How to FIX Backdoor Roth IRA Screw-ups and When the Reverse Makes Sense: Benefits of a Reverse Rollover for additional information.

[jawckey]

Thanks a lot ... for the tip on reverse roll over of IRA ... Not sure if my employer allows, need to check Looks like very useful. Thank you