ForumsMega Backdoor Roth Solo 401kWhen to consider other IRA’s in doing a back door ROTH

Forums Solo 401k Mega Backdoor Roth Solo 401k When to consider other IRA’s in doing a back door ROTH

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  • When to consider other IRA’s in doing a back door ROTH

    Ryan Johnson replied 2 years, 10 months ago 2 Members · 2 Posts
  • 1 Reply
  • Roberta E.

    Top SubjectSolo 401k,Mega Backdoor Roth Solo 401k
    Top ForumsSolo 401k, Mega Backdoor Roth Solo 401k

    Roberta E.

    Roberta E.

    Top SubjectSolo 401k,Mega Backdoor Roth Solo 401k

    July 5, 2021 at 10:23 am

    Ive read this over and over when reading about Back Door Roth and am looking for clarification:

    “If this is your only IRA that started with no funds then the change would be non taxable. If you had another IRA then the gains there would be prorated with the zero gains in the new Ira and there would be taxes due.”

    Do the prorated gains being referred to, come into play only when you have another Traditional IRA?

    Having another ROTH IRA already established when doing a back door ROTH is irrelevant?

  • Ryan Johnson

    Top SubjectSolo 401k Contributions,Solo 401k
    Top ForumsSolo 401k Contributions, Solo 401k

    Ryan Johnson

    Ryan Johnson

    Top SubjectSolo 401k Contributions,Solo 401k

    July 6, 2021 at 9:29 am

    Roberta

    The prorated gains would, at least 99.9% of the time, affect the Traditional IRA that’s being rolled into the Roth IRA. The IRS wants to get their tax and as they realize that they’ll miss this opportunity once the IRA is rolled into a Roth (just by the ROTH’s very nature of paying tax now and never again), they access the tax when the Traditional IRA is rolled into the backdoor Roth IRA.

    On a side note, if the client makes a non-deductible contribution into the Roth IRA, the taxable portion on the IRA gains won’t be a factor (as no traditional IRA, a classic tax deference vehicle, was ever established).

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