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Rollover and then Backdoor Roth?

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  • Rollover and then Backdoor Roth?

    I'm wondering if this plan would work or if there is a better way to do this... my wife has some money sitting in the Texas' Teacher Retirement System (TRS) from many years ago (~$8K). She does not have a current retirement plan in which she can roll this money into. She does have an IRA account through which we do backdoor roth contributions each year. I was thinking about rolling over this TRS money into her IRA and then converting $6.5K of it into the roth for her annual backdoor contribution. This would leave about $1,800 left in the IRA which we would then need to withdraw so that we don't have any money left in the tradition IRA account. We would of course have to pay an early withdrawal penalty on this amount ($1.8K) but at least it would be better than paying the penalty on the entire $8K if we did a straight withdrawal from the TRS instead. Will this work? Does it make sense?

  • #2
    This will not work. The TRS is retirement plan money that can be rolled over into your tIRA, but this is not the same as an IRA contribution. Your rollover is pre-tax while tIRA contributions for the purpose of the BDR are after-tax. Personally, for only $8K I would just rollover the TRS funds directly into your Roth IRA (a taxable transaction) and separately do your $6.5K BDR for 2023.


    • #3
      Follow GasFIRE's advice. If it is not clear to you.

      A direct taxable rollover to a Roth IRA has nothing to do with the IRA contribution limit. Also, since the assets are never in a traditional, SEP and SIMPLE IRA account, they will not be reported on Form 8086 Line 6 and have no effect on a Backdoor Roth.


      • #4
        Thanks for the feedback. This makes sense. The letter we received from the TRS said the funds could be rolled over into an IRA but for some reason I thought this meant they could only do the rollover into a traditional IRA. Not sure why I read it that way. We'll just roll it into roth and pay the taxes.