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Backdoor Roth - Pro-Rata Rule And Timing of Events

On 12/27/2022, I request my broker to move all my traditional IRA into my work sponsored 401K.  My goal with this transaction was to get all my assets out of traditional IRAs to avoid the Pro-Rata Rule on a backdoor Roth conversion for 2022.

 

The transaction happened on 12/27, but then on 12/30/2022 my traditional IRA was paid $1,406.65 in interest from the funds that I moved to the 401K that were invested for most of December 2022.

On 01/05/2023, I realized this and moved the $1,406.65 to my 401K which generated at 1099-R code G for 2023.  This transaction gave me $0 balance for Traditional IRAs.

On 3/21/2023, I made a $7,000 non-deductible traditional IRA contribution for tax year 2022 and converted it to a Roth on 3/23/2023.  This generated a 1099-R in 2023 which I will mail the IRS a 2022 Form 8606 to record the nondeductible basis for conversion for this 2022 transaction that happened in 2023.

I have two questions:

 

1)  With the timing of these events,  do I need to be concerned that the $1,406.65 is subject to the pro-rate rule?

 

2)  How to I handle this situation in Turbo Tax?  

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1 Best answer

Accepted Solutions
DanaB27
Expert Alumni

Backdoor Roth - Pro-Rata Rule And Timing of Events

1) No, as long as you don't have pre-tax funds in the account on December 31, 2023, the pro-rata rule will not apply.

 

2) You will enter your 2023 Form 1099-Rs for the rollover and the conversion in the retirement section and enter the basis from line 14 of your 2022 Form 8606 when TurboTax asks "Any nondeductible Contributions to your IRA?". Please see How do I enter a backdoor Roth IRA conversion? for detailed instructions.

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1 Reply
DanaB27
Expert Alumni

Backdoor Roth - Pro-Rata Rule And Timing of Events

1) No, as long as you don't have pre-tax funds in the account on December 31, 2023, the pro-rata rule will not apply.

 

2) You will enter your 2023 Form 1099-Rs for the rollover and the conversion in the retirement section and enter the basis from line 14 of your 2022 Form 8606 when TurboTax asks "Any nondeductible Contributions to your IRA?". Please see How do I enter a backdoor Roth IRA conversion? for detailed instructions.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
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