This is a very simplistic example of the pro rata rule:

If your current Traditional IRA had $8, and the pre/post breakdown was $5-pre/$3-post and you wanted to do the back door contribution of $2, you would first contribute the $2 post tax into your IRA and then convert $2 to your ROTH.

The tax issue (pro rata rule) is that the IRS doesn't care that you just put $2 of post tax into your IRA, they just see that the new ratio of pre/post in the traditional IRA is now $5/$5. You will need to pay taxes on 50% ($1) of that $2 conversion.

One thing that I've read is, with all the different brokerage houses out there, the best thing to set up is one Traditional IRA specifically for the back door process. Open the T-IRA and keep it at a $0 balance. When you want to do the B.D. conversion, deposit the post tax $ into the T-IRA and then convert it as soon as it clears the hold (usually 2-10 days depending on the brokerage). That way you don't owe tax on any of the deposited $ and the only thing you'll owe tax on is the earnings (if the market went up during the hold). Some brokerage houses know the deal, and will 'auto-convert' for you. You'd need to talk to the brokerage to see if they do this.

DYODD. I'm just a pilot and it isn't smart to take financial advice from a pilot.

I'd do a terrible job of trying to explain it. Just google IRA Pro-Rata rule...lots of great information out there about it.

I don’t understand the hate for RMD’s. Isn’t that why we save the money in the first place?

I’ll spend it when and how I want to and the government can $&@&$ off because it’s my money. Maybe that’s just me though.

I'm not doing it to avoid RMDs, but more options isn't necessarily a bad thing.

Creative Accounting?

Any thoughts about ways to "benefit" me vice the government regarding taxes going into retirement?. One thing I was thinking was, delay taking PBGC benefit for a full calendar year as well as delaying taking SS for that same year. Both of those payouts go up in subsequent years,....but more importantly....my tax rate would be 0% for that calendar year. Then do some sorta roth conversion on some monies and probably(hopefully) pay a lot less taxes to do that due to the 0% tax bracket to start ( before the taxable money that is getting converted)

Thoughts....will talk to a retirement guy but just trying to think through some things prior to wasting my/his time

When retired and having to add an extra 25 percent to each withdrawal to cover taxes the whole tax now vs later becomes more stark So say the retired members of my family who lack tax free accounts. They forget about the taxes they saved up front when the money was originally invested

Roth funds do have a bit more flexibility, which may be attractive

Backdoor Roth IRAs to me are a complete no brainer. I've paid taxes on the money. I can save it in a taxable account, or through a very simple process, render it tax free forever. Assuming I can afford to save the money, I can think of not a single reason to not backdoor it

As for the 401 k (a, etc), lot more room for opinion. It's good to have options

Buck,

Zero s tough. Even if you retiree on Dec 31st, you'll hopefully have some profit sharing the next year. But the overall strategy of post retirement conversions is a good one. Even if your income isn't zero it should be a lot lower than when you're working. My father did a lot of conversions in his first years of retirement

I hope you'll share the results of your conversation.

thanks sputnik....I prolly (maybe) woulda thought about that...that pesky PS ;>)

That’s exactly what I’m gonna try to do... Then look at those converted funds as funds for 10+ years into retirement so it makes the conversion worth it. Trying to have a year or possibly two of living expenses in taxable accounts when I retire. It really depends on how much those accounts earn and PS for the first year.

Denny
Denny