A friend of mine has been utilizing backdoor Roth strategy for few years because his income is too high to contribute to Roth IRA directly.
At his previous job (before 2019), he made pretax contribution to a 403b retirement account, and he did not touch those fund before 2023.
In 2023, he rolled over 403b fund (related to his previous job) to an Fidelity rollover IRA account.
As a result, portion of back door Roth is taxable.
2023 Traditional IRA nondeductible contribution: $6500
Traditional IRA account Value @ 12/31/23: $1
Rollover IRA account @ 12/31/23: $58,500
Converted to Roth IRA: $6500.
6500/(6500+58500+1)=10% of converted amount $6,500 is not taxable in 2023= 650.
His basis in IRA =6500(2023 nondeductible contribution)-650 (nontaxable portion of conversion in 2023)=5850.
He plans to get rid of the rollover IRA by rolling over $ to retirement account sponsored by his current employer so that he can continue to do back door Roth without subject to Pro-rata rule. 1) Since he has 5,850 basis in IRA, would it make more sense to convert 5,850 of rollover IRA to Roth and the remaining portion 53K can be just rolled over to retirement account with current employer? By 12/31/2024, he will have 0 balance in traditional IRA account and none in Rollover IRA account. 2) He still wants to make 7K nondeductible contribution to traditional IRA in 2024 and convert to Roth in 2024. Does it matter if he does the back door roth before or after he gets rid of rollover IRA account as long as rollover IRA account and traditional IRA value is at 0 by 12/31/24?
Thank you for your time and help!
