Some cause restrictions or limitations and some do not.

They are tracked per how the IRS treats them for what happened, and in some cases the employer account(s) do get counted with personal (IRA, SEP) and in some cases, the employer account(s) are not taken into consideration with personal. That's how you know when things look right or wrong.Įspecially when you have various Activities. What you need to do first, to follow the retirement money, is to know what was post-tax or pre-tax. Do I need to know if she rolled it over to her IRA or SEP?' Note that inherited IRAs are excluded in this calculation.'She had a 401K from the past that she rolled over. Instead, you must figure out the proportion of your total traditional IRA balances that is composed of nondeductible contributions, then use that percentage to find out how much of your conversion will not be taxable. According to IRS rules, you cannot cherry-pick and convert just nondeductible contributions, leaving deductible contributions and earnings in the account, in order to avoid taxes. Note that earnings are always taxable when converted, whether they come from deductible or nondeductible contributions, so for purposes of figuring out taxes on a conversion, you can think of your balances as falling into just 2 categories: (1) nondeductible contributions, and (2) everything else. If that is the case, whatever amount you convert will all be taxable income. 'Estimating the taxable income from a conversion is straightforward if you've never made nondeductible contributions to any traditional IRA. It might have its own basis consideration, of course. RMD from the inherited IRA doesn't change that backdoor basis. Unless your client also has (a) traditional IRA with mixed contributions or delayed conversion and has earnings? For backdoor, that happens in a quick timeframe, really, so there is nothing taxable.

The nondeductible amount is contributed, then converted. I don't agree with this part: 'so the distribution will in effect decrease the tax basis of the Non-deductible IRA in the year of distribution and contribution, so when the non-ded IRA is converted, the tax basis decreases and will create a small taxable event on Form 8606 because the distribution was from a inherited pre-tax traditional IRA' The rules for distributions that apply to beneficiaries. You must begin receiving distributions from the IRA under The assets in the IRA until you receive distributions from it. Like the original owner, you generally won't owe tax on Name of the deceased IRA owner for the benefit of you as Trustee-to-trustee transfer as long as the IRA into whichĪmounts are being moved is set up and maintained in the It also means you can't roll over any amounts into This means that you can't make any contributions to If you inherit a traditional IRA from anyone other than your deceased spouse, you can't treat the inherited IRA as your own. Inherited from someone other than spouse. Furthermore, the inherited IRA is subjected to RMD each year, so the distribution will in effect decrease the tax basis of the Non-deductible IRA in the year of distribution and contribution, so when the non-ded IRA is converted, the tax basis decreases and will create a small taxable event on Form 8606 because the distribution was from a inherited pre-tax traditional IRA. Does anyone have the source in the tax code that shows that inherited IRAs (of whom you are the beneficiary) are not aggregated with your own personal IRAs?īelow are some explanations that I found that may support that inherited IRAs are not included in the aggregation of your own IRAs when applying the pro-rata rule, but I am not sure if I am interpreting this correctly. So in terms of pro-rata taxes (due to the pre-tax money in the inherited IRA), I have been reading that the inherited IRA has no affect and the ROTH conversion is a tax-free event as long as he has no other traditional, simple, SEP IRAs, etc.ġ. My client has done a $6000 contribution to a non-deductible IRA and subsequently converted it to a ROTH IRA in order to accomplish the 'Backdoor ROTH', but he also has an inherited IRA (non spousal). Hello Accountant Community, I have a question that I am having problems with interpreting the rules.īackdoor ROTH and inherited IRA question:

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