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T-IRA contributions | Roth Conversion | Pro-Rata Questions

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  • T-IRA contributions | Roth Conversion | Pro-Rata Questions

    Alright, I've got a situation that is just unique enough that the large number of generic website FAQs can't seem to answer for me.


    Here's the situation:

    I contributed (appropriately) to a Roth in 2015.  In 2016, as I transitioned to full time attending, my gross income crossed the threshold for direct Roth contributions, so I could no longer make a direct Roth deposit.  However, since I am lazy and forgetful, I did not make a contribution of any kind during the 2016 months.  So, last week, I opened a brand new traditional IRA for a non-deductible deposit of $5,500 (with plans to convert later to Roth).  Fortunately, this T-IRA contribution still counts toward my 2016 allowance.  Perfect, that's done with.

    Now, I will plan to also dump another $5,500 into this same account in the near future to account for my 2017 non-deductible contribution, making the account value $11,000.  This is all money that has already been taxed, mind you.  If I am understanding everything correctly, I can convert all of this $11,000 to my Roth.

    This then creates the following scenario:

    -Fill out 8606 form to document the initial $5,500 (2016 contribution).  Since conversions are actually counted on the date of conversion, I will not make any mention on the 8606 form this year about conversion.

    -Next year, I will fill out an 8606 form reporting the second $5,500 (2017 contribution) and then I will also report the entire $11,000 conversion on that form.


    Here are the questions: In theory, I've paid taxes on all this money, so shouldn't have to worry about it after conversion.  I am aware of the pro-rata rule, so want to make sure I avoid any additional taxes.

    As of right now, the other retirement money I have stocked up at this point is money that has gone toward the 403b and 457b offered by my non-profit organization. I do not have any other older retirement accounts or any pre-tax savings that have been rolled over to an IRA.  I have maximized my contributions to both of these plans for 2016 ($18,000 to each).  Are these two plans in themselves considered IRAs and do I need to worry about the money in these plans affecting the pro-rata rule for Roth conversion??

    From what I can tell, these non-profit sponsored plans are not considered part of a traditional IRA, but all the money in them came from from my paycheck before any taxes were applied, so I'm not aware of the finer details.

    Hopefully this makes sense.  I just want to convert $11,000 to my Roth and not pay any more taxes.  Am I in the clear?




  • #2
    I believe line 6 of Form 8606 addresses the relevant balances - SEP, SIMPLE, Traditional - that are included in the pro rata calculation.  I agree - haven't seen anywhere that those employer plan balances are included.


    • #3
      Neither your 403b nor 457b count as IRAs. I also have both and have had no issues doing the backdoor Roth for years.

      The scenario you described above is exactly correct in how to report this. This year's taxes is just the 2016 contribution and next year's taxes will show the conversions for both 2016 and 2017.


      • #4
        Also, this has nothing to do with the fact that these are government and/or non-profit plans. As pointed out by ENT Doc, the pro-rata only applies to the designated IRA balances (traditional, SEP and SIMPLE). In addition to the 403b and 457b plans mentioned it does not apply to any other defined contribution (401k, etc...) and defined benefit plans (cash balance, etc...).