No announcement yet.

Tradition (rollover) IRA conversion to Roth

  • Filter
  • Time
  • Show
Clear All
new posts

  • Tradition (rollover) IRA conversion to Roth

    I hate to add to the multitude of Roth conversion questions but need a bit of clarification. My wife has about $10k in a traditional IRA from a previous employer. We have started using the backdoor Roth (for myself) and want to use it for her as well but cant decide how to clear out her traditional IRA so that it has a zero balance by the end of the year. Initially, I thought we should sell it, pay the 10% penalty and the income tax then reinvest. But looking into it more, I think we should convert it to the Roth, and pay the taxes. After either of these steps we should then be able to contribute $6k to her traditional and convert it to the Roth (i.e. back door). Am I on the right track? Would anyone do something different?

  • #2
    Should have converted during transition year!
    What is your marginal tax rate? Most say converting past 24% doesn’t make sense.
    You can still do bd Roth, but pay pro rata tax.
    For the $10k balance, convert it and be done with it.

    Contributions aren’t impacted at all.


    • #3
      For $10k, just convert it all.


      • #4
        Either convert it or pay prorata tax on your be Roth conversions - why do we always forget that is an option? In the end, it won’t make any difference, you’ll pay taxes on $10k of income either in one year or multiple. One-step conversion and an extra $4k income in 2022 is certainly the simplest solution.
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


        • #5
          You haven't indicated your marginal tax rate. As pointed out, if your marginal tax rate is <= 24%. Especially in a down market it is probably best to do a Roth conversion of the $10K. As also pointed out, maybe even if > 24%.

          However, if your marginal tax rate is > 24%.
          • and she has a current 401k, 403b or 457b that accepts IRA rollovers. The pre-tax and only the pre-tax balance in the traditional IRA could be rolled over clearing the field for tax efficient Backdoor Roths.
          • If not, it would be most tax efficient to leave it alone and pay prorata taxation on the Roth conversion of the Backdoor Roth.


          • #6
            If you really don’t want to pay the taxes and she works you can roll it over to her 401k


            • #7
              My marginal tax rate is 35%, however, I like the idea of converting it and being done, just to simplify things. I appreciate everyone's responses and help. You all are great.