topic Re: Question about backdoor roth ira in Retirement tax questions

Question about backdoor roth ira

ccnan — Thu, 20 Feb 2025 20:23:48 GMT

I have a rollover IRA in Vanguard since 2008 lets say having 20 k.

I create a new traditional IRA in 2024 in Vanguard and fund 7k . Let s say it has 8k now after gains in 2025, i want to convert this account into Roth IRA .

What are the tax implications for the Rollover IRA which have had since 2008. Does any tax apply to the 20k in the Rollover IRA which i have had since 2008, when i do the conversion of new Traditional IRA into Roth IRA?

Re: Question about backdoor roth ira

ThomasM125 — Thu, 20 Feb 2025 20:27:32 GMT

No, the funds you roll into the new Roth IRA will be taxable but it won't affect the other traditional IRA in any way.

Re: Question about backdoor roth ira

ccnan — Fri, 21 Feb 2025 00:28:46 GMT

Thanks , I was reading this article : https://smartasset.com/retirement/a-guide-to-the-pro-rata-rule-and-roth-iras

where it says "This rule requires you to consider all your IRA accounts as a single entity when calculating taxes owed on a conversion. Essentially, if you have both pre-tax and after-tax contributions in your IRAs, the pro rata rule mandates that any conversion must include a proportional amount of both. " Hence i raised this question.

Re: Question about backdoor roth ira

AnnetteB6 — Fri, 21 Feb 2025 14:36:11 GMT

There is not a specific amount of tax that will apply to the rollover IRA containing $20k. However, since that $20k is presumably pre-tax contributions and your newly created Traditional IRA account funded with $7K is non-deductible, after-tax contributions, the total value of all of your Traditional IRA accounts ($20K + $7K + $1K) will be taken into account when calculating the amount that will be taxable if you convert the newly created IRA to a Roth IRA.

That is what the pro-rata rule is trying to say. Using the formula in the article that you linked, your situation would be this:

$7K / $28K = non-taxable percentage (based on my assumption that the $7K is a non-deductible contribution)

The rollover IRA will still be there and it will still have zero basis (if it was all pre-tax contributions) after the Roth IRA conversion.

@ccnan