Hello all,
I was reading about the pro-rata rule recently for IRA conversions, and I was hoping for some clarification. My current understanding is that if I have any pretax IRA money (tIRA or rollover IRA) that the pro-rata rule would apply if I tried to do a backdoor IRA in the future. Is this true?
If this is true and I contribute to a company 401k in the future, would it be best to simply leave it in there until I retire and start a Roth conversion ladder?
I ask because I will need to use the Backdoor Roth method every year which requires conversion of a nondeductible tIRA to a Roth IRA. I won't qualify for the tIRA tax credit.
Thanks
To answer your "is it true?" question, yes.
To answer your question about leaving money you earn during your high income years inside a 401(k), yes.
BTW, I would guess you've overrating the Roth option. If you are currently broke and so have a low marginal tax rate, right now you should use a Roth and maybe even convert traditional IRAs to a Roth... but once you start making the sort of money where you're not qualifying for a Roth and have funds to make nondeductible contributions for a backdoor Roth, you mostly just want to get as much pretax money as possible into your tax deferred space. Your issue, in other words, aren't the relatively modest taxes you'll pay in retirement. Your issue (probably) is the crushing tax burden you'll shoulder during your working years.