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Tax Experts need explanation on Pro Rata rule
Posted on 11/15/24 at 8:09 am
Posted on 11/15/24 at 8:09 am
I just recently rolled over a previous employers 401k to a traditional IRA to get more investment choices. Well I was alerted that because of the new pro rata rule, that I may not need to do a backdoor roth since I've rolled over the 401k to a traditional IRA. I'm just trying to not get railed when I file my taxes this year. What is my best option here? Just contribute to a traditional IRA instead of backdooring to a Roth? Rollover the IRA to my current employers 401k? Any help would be appreciated
2
Posted on 11/15/24 at 9:00 am to Civildawg
Can you roll pretax it into the 401k and clear the IRA of pre tax thus leaving after tax for the back door?
Posted on 11/15/24 at 9:12 am to TJack
Yeah I can but I feel dumb because I literally just rolled it out of the 401k to an IRA because everyone suggests that. So I guess I would just need to roll it over to my current employers 401k so I can start funding my Roth again?
Posted on 11/15/24 at 10:23 am to Civildawg
The answer to your question will be very different depending on how how much you have in each of your IRA accounts, what tax bracket your backdoor Roth is likely to be in, and what options are available in your employers 401K.
If your employer offers Roth 401K it might be best to just contribute more to that if you aren't already maxing it out. They might also offer additional after-tax contributions that can then be converted to Roth 401K above the contribution limit. Even if the fees are higher in the 401K, that might still make more sense than the taxes on the Pro Rata Rule.
You might Google "Maga Back Door Roth" to see how it could work, but that is usually out of reach income wise for most people, plus a lot of employers don't offer those features. None of mine ever did.
If your employer offers Roth 401K it might be best to just contribute more to that if you aren't already maxing it out. They might also offer additional after-tax contributions that can then be converted to Roth 401K above the contribution limit. Even if the fees are higher in the 401K, that might still make more sense than the taxes on the Pro Rata Rule.
You might Google "Maga Back Door Roth" to see how it could work, but that is usually out of reach income wise for most people, plus a lot of employers don't offer those features. None of mine ever did.
Posted on 11/15/24 at 10:35 am to Civildawg
Do you have both Pre tax and After tax dollars in any Traditional IRAs?
If the answer is no then I don't think the Pro Rata rule will impact you.
Interested in someone who knows more discussing though.
If the answer is no then I don't think the Pro Rata rule will impact you.
Interested in someone who knows more discussing though.
Posted on 11/15/24 at 11:00 am to lsu13lsu
I guess the answer to that is no, but I'm contributing after tax dollars to a traditional Ira and then backdooring it into a Roth.
This post was edited on 11/15/24 at 11:01 am
Posted on 11/15/24 at 11:26 am to Civildawg
quote:
I guess the answer to that is no, but I'm contributing after tax dollars to a traditional Ira and then backdooring it into a Roth.
Except what you rolled over from your previous employer, correct?
You need to roll over any pretax dollars into your current employer 401k account then. As someone mentioned above.
The pro rata rule doesn't apply to employer 401ks.
Posted on 11/15/24 at 11:31 am to lsu13lsu
Correct, so I just rolled it over from a 401k with my previous employer into a traditional Ira, now you're saying to avoid pro rata I need to roll it over again to my current 401k?
Posted on 11/15/24 at 11:37 am to Civildawg
I got my tax law degree from the same place as I got my medical degree. But, it appears so if you want to use your Traditional IRA for AFTER TAX contributions to backdoor Roth.
Posted on 11/15/24 at 12:16 pm to Civildawg
I had been backdoor Rothing and did not know my wife had a Traditional IRA floating around out there with a balance in it.
Had to amend 2 previous tax years and pay back taxes due to the pro rata rule.
Don't backdoor Roth unless you have a 0 balance in your Traditional IRA.
Had to amend 2 previous tax years and pay back taxes due to the pro rata rule.
Don't backdoor Roth unless you have a 0 balance in your Traditional IRA.
Posted on 11/15/24 at 1:30 pm to Civildawg
It’s not a new rule, for starters.
Also, I assume you make too much to just go straight to a Roth and skip the backdoor?
Let’s get that out of the way before we get any further.
Also, I assume you make too much to just go straight to a Roth and skip the backdoor?
Let’s get that out of the way before we get any further.
Posted on 11/15/24 at 2:15 pm to slackster
Yes I am over the income limits of a Roth
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