What is the pro rata rule for Roth conversion?
The pro rata rule states that taxation of IRA accounts when converted partially or fully to Roth accounts will be calculated proportionally to the fraction of after-tax vs. before-tax contributions.
Do I have until April 15 to do a Roth conversion?
Two important annual deadlines are the Roth IRA conversion deadline (December 31), and the deadline for contributions to an IRA (the due date for filing taxes, around April 15 of the next year with no provision for extensions).
Do you have to be 59.5 to do a Roth conversion?
Generally, if you will need the funds within the next five years, a Roth IRA is not a good choice. This is because a five-year waiting period is required if you are under age 59 1/2 before you can distribute the converted amount without owing the 10% additional tax.
Can I convert part of my IRA to a Roth?
You can convert all or part of the money in a traditional IRA into a Roth IRA. You will owe taxes on the money you convert, but you’ll be able to take tax-free withdrawals from the Roth IRA in the future.
How do I avoid pro rata Roth conversion?
One way to avoid the pro-rata rule So if you move your IRA into your 401(k), then complete the “backdoor” transaction, the only IRA money you would have in this example would be the $5k after-tax IRA, so you won’t pay any taxes on the conversion since 0% of your total IRA money is pre-tax.
What is a backdoor Roth conversion?
A backdoor Roth IRA lets you convert a traditional IRA to a Roth, even if your income is too high for a Roth IRA. Basically, a backdoor Roth IRA boils down to some fancy administrative work: You put money in a traditional IRA, convert your contributed funds into a Roth IRA, pay some taxes and you’re done.
What is a backdoor Roth?
What Is a Backdoor Roth IRA? A backdoor Roth IRA is not an official type of retirement account. Instead, it is an informal name for a complicated but IRS-sanctioned method for high-income taxpayers to fund a Roth, even if their incomes exceed the limits that the IRS allows for regular Roth contributions.