ROTH IRA

[Opus 17]

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@LLC3 wrote:

Thank you so much for your detailed explanation! 

One more question: As long as I rollover the IRA that contains the old 401(k) into my new 403B before the end of 2023, it doesn't matter when I do an IRA to Roth conversion of the non-deductible IRA funds in 2023. Correct?

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Yes, if I understand your question correctly.  You want to get to a situation where (considering all your IRA accounts as if they were one account) all the funds are non-deductible.  (In your case, by moving the deductible funds back to the 403B.)  Once you have a situation where all the funds in your traditional IRAs are non-deductible, you can do a successful back door Roth conversion and it doesn't matter when you do it. 

[Opus 17]

@LLC3 

I may have misunderstood your question. If you want to do the Roth conversion of the nondeductible funds first, and the rollover back to the 403B second, I believe that will also work as long as it is finished before December 31.

In my mind, it is cleaner to do the rollover back to the 403B first and the Roth conversion after, but I believe that it is not required for you to do it that way.

[LLC3]

I'll follow your steps and get this resolved. Thanks again for your help!

[LLC3]

Thank you!

[LLC3]

I just found out that I actually filed 8606 for my 2021 tax return. So this step is done.

I have one more question: Since I haven't done the third step (to rollover the IRA that contains the old 401(k) into my new 403B) until now. Do I need to pay tax for the backdoor ROTH conversion from non-deductible IRA when I file my 2022 tax return? Thank you!

[Opus 17]

@LLC3 

A back door, Roth IRA conversion should never be taxable if you do it correctly. You make a nondeductible contribution to a traditional IRA, and then convert it to a Roth. The conversion is non-taxable because as long as the original contributions were never deducted, so you don’t have any tax deduction to pay back.  Where are you run into trouble is if you have a mixture of deductible and nondeductible money in your IRAs, because all of your conversions are prorated. That’s why you need to get the employer funds out of the IRA and into the 403B before the end of the tax year.

however, you do need to report the 2022 nondeductible contributions so they get added to form 8606. Your 2022 tax return should include a new form 8606 with the updated nondeductible basis.

[LLC3]

For 2022, I do have both pre-tax employer IRA and after-tax Roth IRA. How much do I need to pay back? Thanks!

[DanaB27]

The pro-rata rule will apply to the conversion you made in 2022 since you had pre-tax and after-tax funds in the traditional IRA. This is calculated on Form 8606 or Worksheet 1-1. Figuring the Taxable Part of Your IRA Distribution. You will see the taxable amount on line 18 of Form 8606.

Please be aware, we cannot see your return therefore we cannot tell you how much will be taxable.

As Opus 17 mentioned you should move the pre-tax funds out of the traditional IRA and into the 403B  (before the end of December 2023) to avoid this issue in 2023.

@LLC3