Level 5

Question

Is Backdoor Roth ever allowed with Inherited Non-Spousal IRA's

Forum|Forum|4 years ago
March 21, 2022
23 replies
72 views

Taxpayer inherited IRA from Grandmother. Her share of the IRA is in her name and name of deceased. Advisor also created a Roth IRA in the name of the taxpayer so Trustee to Trustee. DOD was Dec 2020.

$8,000 was distributed in 2021 with 1099-R:

Line 1 = $8,000 Line 2a $8,000 Line 2b Marked X for Taxable amount not determined

Withheld for Fed & State Line 7 = 4

No contributions and only $8,000 distribution, 2021 RMD Basis Value = $50,104

Advisor also provided statement that $6,000 Roth IRA contribution was made in 2021 in taxpayer's name. Roth Account Value as of 12/31/21 - $5,978.92.

Based on these facts, is all the $8,000 taxable?

Thanks for the help in advance!

ProSeries Professional

This topic has been closed for replies.

qbteachmt

Level 15

It's not "backdoor." Backdoor is Nondeductible Contribution, and you don't have a Contribution condition.

You might have a Conversion situation. Why did they open Roth for this?

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E

ea_rva aka acctgtaxmattersAuthor

Level 5

Do not know for sure. Could be prior to 2021 with no activity. Do I need to find out?

E

ea_rva aka acctgtaxmattersAuthor

Level 5

Oh sorry I thought you said when. She thinks/calling the distribution a "rollover".

rbynaker

Level 13

Sounds like you have two completely unrelated things. An inherited IRA distribution of $8,000 (which is likely fully taxable unless grandma had some IRA basis).

And a $6K Roth IRA contribution. Check to make sure the contribution is allowed based on the AGI and earned income.

E

ea_rva aka acctgtaxmattersAuthor

Level 5

Thank you both.

How does the $50k 12/31/21 basis factor into calculating what's taxable? Only moving forward?

I thought her basis would have been the GM basis? Do I just need to confirm that with advisor?

qbteachmt

Level 15

Yes, the basis each year will be used against the FMV each year, for computing the taxable and nontaxable portions of each distribution year. Realize it will change, as there are earnings, and every distribution reduces basis.

$100,000 account FMV, $20k basis and $20k distribution =

20% nontaxable and 80% taxable.

$4k nontaxable + $16k taxable.

And now, $20k basis - $4k = $16k basis remaining.

Every year, recompute basis, then recompute prorata.

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