Did I miss the window for a 2023 backdoor Roth contribution (without triggering the pro-rata rule)?

Submitted by echo-engee t3_1000tkt in personalfinance

In 2022, I've had a balance in a Rollover IRA. These had originally been traditional 401k contributions at a previous employer.

In 2023, I want to make a backdoor Roth contribution. To avoid triggering the pro-rata rule, I am rolling my Rollover IRA into my current employer's 401k, which allows reverse rollovers. However, because I am forgetful, I only filled out the paperwork with Vanguard today, so the reverse rollover won't actually take effect until sometime in January.

Therefore, I will be holding a non-zero traditional IRA balance (in my Rollover IRA) for a few days in 2023.

Does this mean that, if I perform a Roth conversion on 2023 IRA contributions, my Rollover IRA balance will be taxed per the pro-rata rule? Essentially, have I missed the window for a 2023 backdoor Roth contribution, and should I wait until 2024?

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DeluxeXL t1_j2erkyb wrote

You have until 12/31 of the calendar year you perform Roth conversions to empty out your traditional IRA.

You can roll over, contribute, and convert in any order, as long as you don't mix up pretax and aftertax balances in the same account.

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echo-engee OP t1_j2erw69 wrote

ah, thank you. so it is the year of the conversion, not the previous year, meaning that I should be good to perform a backdoor Roth conversion in 2023 (assuming I have $0 in a traditional IRA on 12/31/2023)?

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DeluxeXL t1_j2eryk3 wrote

Yes. Conversion is strictly calendar year based.

Contribution on the other hand, can be made until Tax Day.

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pancak3d t1_j2eswdg wrote

Must have zero tIRA balance on December 31 in the year that you do the conversion

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Jordaldino t1_j2ew5u4 wrote

If I file jointly will a spouse’s IRA trigger the pro rata rule?

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OkBox6131 t1_j2ext6u wrote

IRAs are individual retirement account. You can’t have a joint account. You only go with your own balances

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pancak3d t1_j2ezuek wrote

No, your IRA balances are considered separately for pro rata. The conversion / pro rata impact is calculated on Form 8606, which begins:

"If married, file a separate form for each spouse required to file 2022 Form 8606"

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cwazycupcakes13 t1_j2flsep wrote

As others have noted, as long as you do the backdoor Roth conversion step in 2023, the only IRA balance that matters is the one on 12/31/2023. Fun fact, if you want to, you can actually still do a backdoor Roth for tax year 2022. Then you have the rest of 2023 to decide to if you want to do it again for tax year 2023. I have just worked through this process for a similar circumstance for myself.

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Grevious47 t1_j2fujkv wrote

Wait. So I also have money in a rollover tIRA that I was going to rollover into a 401k before doing a backdoor Roth to avoid pro-rata. I thought I has until April 2023 to do both steps. Was that wrong and I only have until 12/31/2022 to pull money out of the rollover IRA to avoid pro-rata if I do a backdoor Roth for 2022 say march of 2023? If so I guess Im not doing a backdoor Roth in 2022 then damn.

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cwazycupcakes13 t1_j2fw9b7 wrote

You have until April 18, 2023 to make IRA contributions for the 2022 tax year. For backdoor Roth, it will be a non deductible Trad IRA contribution and you will want to do the conversion right away. Let’s assume you are going to do the contribution and conversion in 2023 since it is now impossible to do it in 2022. As long as you have completed the rollover of your pre tax Traditional IRA money to your 401k by 12/31/2023, you are all set and will not owe additional taxes on your already taxed 2022 Traditional IRA contribution. That is why you (and I) are doing this type of rollover, to avoid pro rata taxes.

For your 2023 contribution, you have until the April 2024 deadline to make your 2023 contribution (and presumably the conversion, if you are going to do another backdoor Roth).

Edit: After rereading, my second paragraph made it seem like there is a deadline to do the Roth conversion. There is not. But if you allow money to sit in the Traditional IRA account instead of converting it to Roth, you will owe taxes on the earnings when you do the conversion.

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Grevious47 t1_j2fxff6 wrote

So i would have had to initiate the rollover and empty the traditional IRA account by 12/31/2022 and since I did not do that I am basically out of luck for a 2022 backdoor Roth.

Well, that sucks but not the end of the world...lesson learned.

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sloth_333 t1_j2etj45 wrote

I went down this hole yesterday. Since today the markets are closed, it’s the end of the year unfortunately you can’t do it

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echo-engee OP t1_j2ets0c wrote

Other commenters in this thread note that the 12/31 deadline applies to the year of the conversion, not the previous year, so we should be good, provided that our traditional IRA balances on 12/31/2023 are $0.

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funbis t1_j2et4t8 wrote

This depending on how much you have in the pretax Trad-IRA account. The pro-rata rule is a bit confusing and I do not know how IRS would officially dealing with it. So from what I read off web it tax based on percentage of the Roth rollover against the Pretax Trad-IRA balance

Longer term do makes sure you do not have any Pretax Trad-IRA.

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