Back Door Roth Question

[jimnjana]

Do roll-over IRAs count towards the traditional IRA balance when doing a back door roth conversion? 3 IRA accounts, two are roll over accounts from 401k plans that have never had any additional contributions. One is a non deductible traditional IRA. Objective is to convert do a back door roth IRA of the non deductible IRA only. thanks

 

[cathy63]

Do roll-over IRAs count towards the traditional IRA balance when doing a back door roth conversion? 3 IRA accounts, two are roll over accounts from 401k plans that have never had any additional contributions. One is a non deductible traditional IRA. Objective is to convert do a back door roth IRA of the non deductible IRA only. thanks

Yes. There's really no such thing as a "roll-over IRA". It's just a regular traditional IRA and the IRS requires you to combine all of them together when figuring your IRA basis.

From a tax perspective, there's no advantage to keeping three separate IRA accounts. Unless you have personal reasons for wanting to separate the money you saved when you worked at Company X from your savings while at Company Y, you can combine them into a single account. If you have future rollovers from other employer accounts, you can also put those into an existing IRA. There's no need to open a new account for each rollover.

 

[jimnjana]

Yes. There's really no such thing as a "roll-over IRA". It's just a regular traditional IRA and the IRS requires you to combine all of them together when figuring your IRA basis.

From a tax perspective, there's no advantage to keeping three separate IRA accounts. Unless you have personal reasons for wanting to separate the money you saved when you worked at Company X from your savings while at Company Y, you can combine them into a single account. If you have future rollovers from other employer accounts, you can also put those into an existing IRA. There's no need to open a new account for each rollover.

Thanks. So, I think the only way around this is if the two rollover IRAs were transferred/rolled into an existing 401k that would allow back door Roth with just the remaining IRA cost basis.

 

[cathy63]

Thanks. So, I think the only way around this is if the two rollover IRAs were transferred/rolled into an existing 401k that would allow back door Roth with just the remaining IRA cost basis.

Yes, that's the only way to do it.

 

[jazz4cash]

Yes. There's really no such thing as a "roll-over IRA". It's just a regular traditional IRA and the IRS requires you to combine all of them together when figuring your IRA basis.

This is what I used to believe also. Now I’m not so sure. I found out otherwise when I inquired about rolling funds into current employer 401k. They only accepted funds from a rollover IRA (e.g. an IRA consisting of funds from previous employer 401k). A fine point to be sure and not pertinent to the OP’s question. I agree with you on that but I’m no expert.

 

[ut2sua]

Thanks. So, I think the only way around this is if the two rollover IRAs were transferred/rolled into an existing 401k that would allow back door Roth with just the remaining IRA cost basis.

Yes. That was how I did it.

 

[kaneohe]

This is what I used to believe also. Now I’m not so sure. I found out otherwise when I inquired about rolling funds into current employer 401k. They only accepted funds from a rollover IRA (e.g. an IRA consisting of funds from previous employer 401k). A fine point to be sure and not pertinent to the OP’s question. I agree with you on that but I’m no expert.

Apparently some companies are fussier than others. The general rule seems to be to attempt to rollover to 401K before you do the Roth conversion. In case the rollover is not successful, you won't have a Roth conversion you regret.
It is not clear how much those companies probe the nature of the incoming TIRA......take your word it has rollover only or ask for proof of history.

 

[jazz4cash]

Apparently some companies are fussier than others. The general rule seems to be to attempt to rollover to 401K before you do the Roth conversion. In case the rollover is not successful, you won't have a Roth conversion you regret.
It is not clear how much those companies probe the nature of the incoming TIRA......take your word it has rollover only or ask for proof of history.

Yes. There is a lot hazy gray area and inconsistent terminology, especially with credit union IRAs.