Reply To: 2021 IRA

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Alan S.

You may have overlooked by earlier comment “if she does has no other non Roth IRA balance” the back door conversion will be tax free.

But she does have a rollover IRA which is a traditional IRA and another traditional IRA. So her back door Roth conversion will mostly taxable because for tax purposes all her non Roth IRAs are treated as one combined account, and the total of all these goes on line 6 of Form 8606.

A non deductible contribution can be made to the TIRA and is not a different type of account. Any non deductible contributions become a part of the total non Roth balance. This is sometimes referred to as the “Cream in the coffee situation” in which the non deductible contribution becomes an integral part of the entire Roth IRA balance.

Due to these other 2 non Roth IRAs, she is not a good candidate for the back door Roth since the conversion will be mostly taxable.

Yes, she can wait until 2021 taxes are calculated to determine if her Roth contribution is excess or not. If excess, she can request it to be returned with allocated earnings. The earnings would be taxed and subject to penalty if she is under 59.5 at the time of the excess removal.