IRA aggregation rule

Taxes
#1

Hi all! Excited to be contributing here.

I have a question on the IRA aggregation rule. About 5 years ago, I switched jobs and rolled over my old 401k into a vangaurd traditional IRA that was around 28K at the the time. The balance is now around 38K and I have never contributed to it.

A year ago I opened a new traditional IRA and a Roth IRA which both had 0 balances. I make to much to do a direct roth contribution so I started doing the back door roth. I contributed 6000 last year and then converted to a roth, so the traditional IRA goes back down to 0.

I would like to do the same again this year for the 2021 contribution. As I read about the IRA aggregation rule, does that impact my taxes on the back door roth conversion if I didn’t touch any of the funds in the traditional IRA. I am using post tax income to the back door roth coversion.

I plan to talk to my CPA next, just kinda wanted to guage if other have ran into this.

Thanks!

#2

Hey rmon77!

Thanks for your question.

The aggregation rule counts ALL your traditional IRAs as one IRA. In your case, the $6,000 that was contributed to your new traditional IRA last year would have made the new combined balance of your IRAs to (38k + 6k) 44k. The IRS sees the 44k IRAs as one IRA.

The IRS would count the $6,000 Roth Conversion that you did as converting $6,000 out of your one 44k IRA – the pro-rata rule would have applied.

I would suggest reaching out to your CPA before doing the same this year.

One possible way to get around the aggregation rule in your situation would be to roll over your existing Vanguard IRA (your old 401k) to your new 401k from your new employer. You would have to reach out to your new 401k vendor to see if they would accept this rollover.

Please consult with your CPA and 401k vendor to verify this information.

I hope this helps.

Good luck!

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