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I currently have three retirement accounts:

  1. Account A: Traditional IRA with Pre-tax money
  2. Account B: Traditional IRA with Post-tax money (used for backdoor Roth IRA)
  3. Account C: Roth IRA
  4. Account D: Traditional 401(k)

In the last 3 years, I have been doing backdoor Roth IRA from Account B to Account C. Unfortunately, I was not aware of the pro-rata rule and need to amend my returns to correctly reflect this.

Going forward, I want to continue doing backdoor Roth IRA and thinking of rolling over Account A into Account D so the balance in my Traditional IRA is zero. However, since I've "tainted" my traditional IRA balance due to the pro-rata rule, what happens when I roll over Account A into Account D?

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    there's no difference between account A and account B. They're both traditional IRA with pos-tax basis.
    – littleadv
    Commented Dec 12, 2023 at 6:38

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You're in luck! There's a special exception that allows you to avoid the pro rata rule for IRA-to-401(k) rollovers. From IRS Publication 590-A:

Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA. Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution couldn’t be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or don’t roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible.

So once you sort out the last few years, the sum of all your Traditional IRA balances minus whatever nontaxable basis you end up with can be rolled into your Traditional 401(k). The rest can be converted to your Roth IRA immediately, tax-free, and as long as you don't add any more pre-tax Traditional IRA money, you should be able to do the backdoor Roth IRA annually, also tax-free.

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  • Incredible! Do you know which form I would use to report the taxable basis conversion? The 8606?
    – davyli
    Commented Dec 12, 2023 at 4:57
  • @davyli Yes, Form 8606. Line 14 from the most recent year will have your nontaxable basis, after you're done amending. Everything else should be rolled into your 401(k).
    – Craig W
    Commented Dec 12, 2023 at 15:32
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    Note that not all 401k plans allow rollovers from Traditional IRA, and some only allow it if the funds originally came from another 401k. So the OP should check with their 401k plan.
    – user102008
    Commented Dec 12, 2023 at 16:52
  • Can you elaborate on "The rest can be converted to your Roth IRA immediately, tax-free"? If accountA is rolled into a 401k (completely), and one aments previous year’s returns to properly account for the pro-rata rule and paid say extra $2K in taxes, what exactly does the 2k enable you to do? (in terms of account B (now: $0) and C (now: some $))
    – raychi
    Commented Apr 1 at 23:03
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    @davyli Nope, just matters that you roll over into your Traditional 401(k) before December 31 of the year you do the Roth conversion.
    – Craig W
    Commented Apr 22 at 22:13

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