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Hi all,

Recently I came across two articles covering the potential pitfall of the "step transaction doctrine" in conjunction with Backdoor Roth IRAs:



This seems to be old news, but I was completely unfamiliar with this, so I am a bit concerned.

Looking at my IRA to Roth conversions in the past, there have been as little as 3 days between the IRA contributions and the conversion in one year (most times between 1 to 3 weeks) and in some years they even took place in the same month (so no account statement in between the two steps). However since 2012 at least part of the money I converted was pre-tax money due to a rollover from my company's pension plan, which got terminated.

Since the risk assessment in the two articles above seems to be a bit different, I am wondering, what to do at this point about my past conversions. I could undo the 2015 and 2016 conversion with a recharacterization, but it seems to be too late to do anything about the 2010 - 2014 conversions.

And then it's not clear to me, whether the best course of action is to just wait this out. Although the fact that there appears to be no statue of limitations here, does make me nervous, I wouldn't want a tax issue to come up in 20 or 30 years from now (with potentially huge consequences at that time).
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I'll stick my neck out and say Kitces is looking for problems where there are none.

The backdoor Roth strategy was a well-known effect of the change in law in 2005. Congress knew exactly what they were doing when they removed the income limitation on Roth conversions. They knew they were opening the way for backdoor Roth contributions, and did so deliberately.

He's also wrong when he says there is no reporting process that would allow the IRS to see this. All of the transactions in and out of an IRA account are reported to the IRS. If the IRS cared to, they could discover backdoor Roth contributions pretty easily.

Frankly, this is pretty similar to most of Kitces writing. Find something remotely possible, write an eye-grabbing headline, and get web page views, which translate pretty directly into advertising revenue.

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Thanks so much for your response. Very much appreciated.

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