Will Pro-rata Rule be applied on my 2022 tax return?

[zhoudun73]

I just did rollover of traditional IRA to 401K in January 2023 (total $20,000 rolled over, and no money left in traditional IRA any more)

In this month (February 2023), I am planning to do a backdoor Roth IRA for 2022, I am going to add $6000 to traditional IRA which has zero balance at the moment, then convert to Roth IRA.

1. Will Pro-rata Rule be applied on my 2022 tax return?

2. If yes, then $20,000 which I rolled over from traditional IRA to 401K last month is a mix of pre-tax and after-tax money, is my understanding correct?

3. If the $20,000 is a mix of pre-tax and after-tax money, how do 401K company track this information? Will they get this information from IRS or I have to call 401K company, and let them know the ratio of pre-tax and after-tax for the $20,000?

[dmertz]

With regard to this, no distribution occurred in 2022 for you to report on your 2022 tax return.  The only thing you will report on your 2022 tax return is the $6,000 you will be making for 2022.  Presumably this will be a nondeductible traditional IRA contribution, so the contribution will appear on line 1 of your 2022 Form 8606, propagating to line 14.  Line 14 of your 2022 Form 8606  which will carry forward to line 2 of your 2023 Form 8606 where it will be applied against your 2023 Roth conversion.

None of the questions you asked apply to this situation.

[zhoudun73]

Thanks for your reply!

In this month (February 2023), I will do a contribution of traditional IRA $6000 as non-deductible for 2022 tax return and it is not necessary to do a conversion to Roth IRA for 2022 tax return. Is my understanding correct?

After that, I will do a contribution of traditional IRA $6000 as non-deductible for 2023 tax return, then do a $12,000 conversion to Roth IRA for 2023 tax return.

For 2023 tax return, Pro-rata rule Rule will not applied, is my understanding correct?

Thanks!

[dmertz]

Correct.  The Roth conversion that you do in 2023 will be reportable on your 2023 tax return.

The pro-rata rule will apply to your 2023 Roth conversion, performed on your 2023 Form 8606 (and likely Worksheet 1-1 from IRS Pub 590-B).  If you have no funds in a traditional IRA at the end of 2023, all of your basis will be applied to your 2023 Roth conversion and, if the amount of your Roth conversion is equal to your basis, the pro-rata calculation will result in 100% of the conversion being nontaxable.