Backdoor Roth Mistake?

[Misterfun]

Hello,

I jumped on the backdoor Roth wagon a little too quickly and made a mistake. I didn't realize that my Rollover IRA would cause a tax issue. Is it possible to fix this?

I have a Rollover IRA with $113k
I opened a Traditional IRA with $5k and converted the funds to a Roth IRA a few days later.

I just did this a few days ago. If I rollover my Rollover IRA to my current TSP would this avoid any tax issues at the end of the year?

 

[ziggy29]

Is the traditional IRA that you converted to a Roth separate from the rollover IRA? If so, as long as you are allowed to roll that $113K into TSP I don't see where the problem is, that should be an account transfer with no tax consequences. What am I missing?

 

[Misterfun]

That's correct they're separate and there would be no tax consequences in transferring the rollover IRA to my TSP. Just wanted to make sure the pro-rata issue is only calculated on IRA balances at the end of the year --- which if I rollover would be 0$.

 

[Ronnieboy]

I believe there is some % rule that you have to take consideration of all your IRA accounts. You can't just say I am going to convert this $5k that has had no earnings you have to say that $5k is 5% of your $100k IRA total and then get taxed on 5% of your earnings or something to that effect.
I am by no means an expert, as you can tell from that above jumbled paragraph, but someone who is more eloquent will probably be by and explain it better.

 

[Animorph]

Worst case is you pay taxes on most of that $5k on your 2012 tax return. At least nothing you have to go back and file a 1040x for.

I'd read the IRS instructions very carefully to see if you can retroactively make the rollover IRA disappear. There always seems to be a rule about things like that.

 

[thefinancebuff]

If I rollover my Rollover IRA to my current TSP would this avoid any tax issues at the end of the year?

Yes that'll work.