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The following is a situation a few of my friends are in:

  • Significant assets in traditional IRA
  • Income above Roth IRA limits
  • Their 401k plan allows you to roll regular IRAs into it

Now, the prorata rule prevents them from having a tax-free backdoor Roth IRA because of their traditional IRA assets.

But if they roll the traditional IRA into their 401k, does this mean you can do a regular Backdoor Roth IRA in the same calendar year that you roll your traditional IRA into the 401k without tax implications?

Or would they have to wait until the following year?

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Yes, they should be able to do it the same year.

The pro-rata rule is calculated in Part I of Form 8606. The after-tax percentage is calculated on line 10, where line 5 (the basis from past years plus after-tax contributions up to the end of the year) is divided by line 9 (the total value of Traditional IRAs at the end of the year, plus distributions and conversions to Roth IRA during the year). The amount which you rolled over from Traditional IRA into 401(k) during the year is not included in the denominator of this division, because that amount is not in your Traditional IRA at the end of the year, nor did you distribute it (rollovers are not counted in distributions on line 7) or convert it to Roth IRA. So the after-tax percentage should be just the non-deductible contribution divided by the conversion to Roth IRA, which is 1.0.

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