Backdoor Roth IRA Pro Rata Rule Tax Avoidance

by | Sep 2, 2022 | Roth IRA | 23 comments

Backdoor Roth IRA Pro Rata Rule Tax Avoidance




The backdoor Roth conversion can be a little tricky. Here is a strategy to help you get more money into your Roth IRA without the extra taxes from the Pro Rata Rule. It works best for small business owners, independent contractors or those with a side hustle.

—————————————————–
Join this channel to get access to perks:

—————————————————–
Join this channel to get access to perks:

—————————————————–

/////////////////////////////////////////////////
Get answers FASTER…
Join this channel to get access to perks:

—————————————————–
Are you ready for professional investment advice? We can help you with financial planning and asset management. Let us guide your investments to your financial freedom. START HERE

Our financial planning process is an ongoing relationship because as you grow, your financial plan grows with you. At Sickle Hunter Financial Advisors, we believe that saving and making sound financial decisions will help improve your life’s changing needs and objectives. Retirement, college planning, wealth building, social security, and career benefit packets are only a few of the financial decisions that you may face in your lifetime and we’re here to help guide you.

TRAVIS T SICKLE, CFP®, EA®, AAMS®, CRPC®, RICP®
CERTIFIED FINANCIAL PLANNER™

Company Website:
twitter: @travissickle
Instagram:
facebook:
LinkedIn:

Sickle Hunter Financial Advisors
1646 W Snow Avenue
Suite 144
Tampa, FL 33606

Check out Google Business Profile
——————————————————-

Gear Used in Videos

Partnership referral links
Aura Identity Theft Protection *Up to 50% off* HTTPS://www.aura.com/travis
Seeking Alpha *ONLY $99 ($̶2̶3̶9̶) for the annual plan*

All Amazon links are affiliate links
____________________________________________________________________________
Information in this video is for educational and entertainment purposes only.
sicklehunter.com/disclosures
____________________________________________________________________________

See also  Roth IRA Ordering Rules #financialplanning #retirement #taxes

#travissickle…(read more)


LEARN MORE ABOUT: IRA Accounts

TRANSFER IRA TO GOLD: Gold IRA Account

TRANSFER IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA


Truth about Gold
You May Also Like

23 Comments

  1. Brian Bethke

    Hi Travis. Thanks for the great content. I currently have a rollover IRA with a balance from previous jobs/tax years, and I maxed out my non-deductible contribution for 2022 with 6k into that same account. I'd like to use that 6k from this tax year in a backdoor conversion. Can I re-characterize that 6k to Roth today and then, before the end of the year, roll the remaining balance into my 401k without being hit by the pro rata rule for the entire balance of the account at the time of the re-characterization?

  2. Donutsarelove

    What if I do not do conversion to a 401K or 403B? Lets say I backdoored $6000 into a total of $56,000 (of all IRAs), therefore, $642 would be considered non-taxable. However, $5357 would be taxable? Or would all of ~$56,000 would now be taxable? I feel a feeling ~$50,000 would be taxable… smh

  3. IAm SheIs

    Travis, I’ve watched quite a few videos on these Roth conversions that you’ve made, and I have a question whose answer seems to escape my understanding. If I have former employer pretax money that I’d planned to roll into a traditional IRA BUT don’t plan to make any contributions to it as I am still under the AGI income limits to contribute to a Roth right now, is it necessary to roll this pretax money to the current employer plan first since the pro rata rule only applies to sorting out pretax and after tax contributions for Roth tax implications? I’m wondering if I could just simply do the Roth conversion from those pretax funds, while breaking it up over a five year period to complete the Roth conversion? My employer plan uses Fidelity, and while i do have access to their version that tracks the S&P 500 (FXAIX), it’ll probably be the only fund that I’d consider rolling this pretax money to specifically…

  4. MUKESH KUMAR

    Nice video , I have few questions!

    For instance if I have 400 k in rollover Ira on December 31,2022 and did 6 k back door conversion for 2022 and I am in 24% tax bracket , how much tax I will pay ?

    Also tax I pay this year ( for scenario we will put 1500$ tax ) , will I get that much amount( 1500$) tax free when I start withdrawing rollover Ira in retirement ?

    If I stop back door Roth conversions going forward from 2023 , will there be any further tax implications?

  5. Chase Rucker

    still work for 2022?

  6. Sudha Balasubramanian

    Hi, thanks for the informative video. I have .01$ growth in my money market account in traditional ira When I convert to roth do I need to include this small amount along with 6000$ or should I leave this in the traditional Ira account?

  7. The Humble Trader

    Hi Travis, if I don't have any employee sponsor plan, can I do the following to avoid the IRA Aggregation and Pro Rata rule?

    1. Request a rollover check from my current traditional IRA (all pre-tax money) in December;
    2. Deposit the check into my bank account and return it within 60 days;
    3. Open a new traditional IRA and make a non-deductible contribution, convert that contribution into ROTH IRA immediately (Complete this step by 12/31);
    4. Write a check from my bank account and deposit the rollover amount back to the original IRA;

    Since there's no money in my IRA at the time of conversion and the end of the calendar year, do we avoid the Pro-Rata rule in this case?

    If so, I can do this on an annual basis without having any 401k plan because we have a 60-day rollover rule every year. Love to hear your thoughts. Thank you.

  8. Deepika Tadakhe

    Thanks for posting this video! I have a situation where I made a $12,000(for the years 2021 as well as 2022) non-deductible contribution to a traditional IRA, but waited a few weeks to make the transfer to my Roth IRA and have since earned $0.18 in dividend; therefore the total balance in my traditional IRA is now $12,000.18. At this point can I transfer the entire amount into my Roth IRA or can I only transfer $12,000? What are the options I have here? What should I do about the $0.18? If I can only transfer the $12,000 how does the pro-rata rule impact me for the small amount left? Appreciate any help!

  9. Ankit Jain

    My spouse did backdoor roth conversion in first half of 2021 and account balance was 0. She left her job and rolled over employer 401k into traditional IRA account in 2nd half of 2021. There is a significant account balance in Traditional IRA as of 12/31/2021. Will pro-rata rule apply or it will not as there was zero account balance during Roth Conversion?

  10. Paige M

    Question- I maxed out my Roth IRA for 2021 via back door conversion method, using post-tax money from my paycheck, but when it came time to file taxes today I was confused at the potential tax implications of this strategy since the 1099R Schwab gave me included it as a “taxable amount.” My traditional IRA is always sitting empty since I only opened it to utilize the back door method, so I don’t think I need to worry about the pro rata rule. But are there any other tax implications people should be aware of when doing Roth back door conversions?

  11. Judy Yoo

    Hi, you had mentioned that if you have a workplace plan, you can’t put money into traditional ira and convert…can you explain this more? At 2:05. So I know you wouldn’t be able to deduct with the traditional, but if you’re putting non deductible money into that traditional ira and then rolling it over to the back door ira wouldn’t this be ok?

  12. Sidharth Jhawar

    Hey Travis, great video. Quick question, does existing Rollover IRA creates the same issue of first liquidating the current investment and then converting to ROTH IRA ? Can I still open a traditional IRA if I have existing Rollover IRA ?

  13. Prem Chettri

    Travis quick question, is there a way to do IRA ( either one ), if you are above income limit without tax penalty ? I already have existing Roth and Traditional IRA account with considerable value in it !!

  14. Prem Chettri

    Dude, I came here after almost made a mistake. Someone in Fidelity told me, to create IRA Trad then convert to Roth ( for income cap issue ), problem was I already had another traditional IRA, that guy said it is alright, call me once you fund and we will make sure !!

    So I funded and called Fidelity again, a young guy "Eric" seems to be a big daddy and almost saved my ass as he calculated that I would be paying 97% taxes if I go ahead as I already have another Trad IRA account !! Man sometimes, you will be in big trouble with half baked info, Eric was able to get everything nullified before I got roasted !!

  15. Heng Tang

    Thanks for the video. I contribute every year to my SEP-IRA (pre-tax) and roll it into my 401(k) to avoid the pro rata rule. Can you explain how IRS look at the balance of the IRA? Someone said IRS looks at the balance at the end of the year instead of the time when the ROTH conversion happens. Can you please explain? For example, if I want to do the ROTH conversion on 01/10/2022, in terms of pro rata rule, does IRA look at the balance of IRA on 01/10/2022 (time of conversion) , 12/31/2021(end of previous year) or 12/31/2022(end of the same year)? Thanks!

  16. Phillip Snider

    Can someone do a backdoor Roth early in the year and then later that year rollover an old 403B to a rollover IRA (for larger roth conversions) and avoid the pro rata rule? BTW, the backdoor Roth was done from an IRA that only contained 6,000 after tax and the balance was zero after the conversion).

  17. Marcia Elisa Solorzano

    So if i have a traditional IRA i maxed out last year at 6000 with nondeductable, and i gained 900 dollars just due to market/dividends growth. Will hte gains be considered nondeductabile as well? i'm wanting to backdoor roth this year but really unsure about this pro-rata rule. is there any benefit of roth IRA vs traditional IRA that is nondeductible ?

  18. Nicolas

    Excellent info. Thank you sir

  19. Che, Capo

    Hello Travis! Great video, you present the information so well, thank you. Perhaps you would know the answer to a question I have? Say I want to do a "backdoor Roth" conversion, I've transferred all tax-deferred traditional IRA's into my 401k so I have $0 traditional tax-deferred IRA's, and invest the max $6000 into a traditional IRA without deducting any of it for this tax year. If my $6000 investment grows, to $6100 for example, would I be able to convert the full $6100 to a Roth IRA without paying any additional taxes? Or is there some rule saying I can only convert the $6000?

  20. Peace and Calm

    Hi, I have a SIMPLE IRA with my employer. No 401K. I have a W2 job, also a side hustle that contributes to SEP IRA. How can I contribute to Roth IRA?

  21. Marla Lama

    I am employed, high earner and do not qualify for Roth IRA but I have my retirement account. Can I open a Roth IRA for my spouse who does not work and has no retirement account? Thanks

  22. Marla Lama

    Thanks, good info. So, for someone, employed, with traditional IRA, and high income, doing a backdoor conversion is not advantageous

  23. Coy Hoang

    Hi Travis. Thanks for posting this video. Question: if we have a workplace 401k, what is the income limitations to contribute to a regular IRA on a non-deductible basis?

U.S. National Debt

The current U.S. national debt:
$35,945,396,362,475

Source

ben stein recessions & depressions

Retirement Age Calculator

  Original Size