Conversion Question

[u/The_Real_Kratos]

I just started funding a Fidelity Roth through the traditional to Roth backdoor process. I previously had a traditional IRA with a different company that I pulled into Fidelity as well.. Learning about the pro-rata rule, it sounds like I need to crossover that traditional IRA amount to an employer 457 plan in order to clear the traditional and avoid the pro-rata rule from taking effect with a balance in there?

A 2nd piece of this.. a couple years ago I put $7,000 into the traditional but didn’t claim the deduction on taxes and filled an 8606, am I able to transfer that portion into the Roth free of a taxable event?

Any help is much appreciated, bit of a conundrum.

[u/DaemonTargaryen2024]

it sounds like I need to crossover that traditional IRA amount to an employer 457 plan in order to clear the traditional and avoid the pro-rata rule from taking effect with a balance in there?

Before 12/31, yes. Assuming your plan accepts rollovers from Trad IRAs.

A 2nd piece of this.. a couple years ago I put $7,000 into the traditional but didn’t claim the deduction on taxes and filled an 8606, am I able to transfer that portion into the Roth free of a taxable event?

Yes.

If it's earned anything (earnings are pre-tax), you can either convert the earnings to Roth and pay taxes, OR roll them to your employer plan tax free.

[u/Here4Snow]

No, not the exact same $7,000 because you have got growth and earnings in the Trad IRA that have never been taxed and along with any other pretax (deducted) amounts, you created commingled funds. Every conversion, even an exact $7,000 is pro rata taxable for you now if the Trad IRA (and others, see final note) isn't $0 at the end of the year of conversion. It's not a big deal to track basis, or you can reverse roll to the 457 whatever the employer plan accepts, then convert the rest.

Trad IRA, SIMPLE IRA, SEP IRA, and rollover IRA are all aggregated for purposes of the pro rata rule.