I've read up on the mega backdoor - the limits, the rules, 55k IRS limit (for 2018), how withdrawals work etc. While going through all of it I happened to come across some people saying - to avoid tax complications, make sure to either not have any pre-tax traditional IRAs or, if you do, roll them over to your employer's pre-tax 401k before doing the mega backdoor conversions.

Now the question is, would this problem exist in my situation where I have:

  • pre-tax 401k rolled over into Betterment's trad. IRA from prev. employer
  • Roth 401k rolled over into Betterment's Roth IRA from that same employer
  • intention to start after-tax 401k with new employer in a Vanguard account and roll the funds over to a Roth IRA in the same Vanguard account

Basically, I'm not going to mix pre-tax, after-tax or untaxed funds in any of my accounts. Do I still need to roll over the Betterment traditional IRA to my employer's 401k to avoid additional tax complication?

2 Answers 2


I'm guessing you heard about how an existing pre-tax Traditional IRA interferes with the regular backdoor Roth IRA. To avoid income limits on direct Roth IRA contributions, you first make a non-deductible Traditional IRA contribution (no income limits) and then quickly convert. Since there are minimal earnings the taxes are nominal. However, if you have existing pre-tax IRA money, the conversion considers all your accounts, and the money comes proportionally from pre-tax and after-tax balances (the pro rata rule). Converting pre-tax money means it is taxed like regular income.

With the mega backdoor Roth, you contribute to an after-tax (but non-Roth) 401(k). When you do a rollover, the after-tax contributions can be moved into a Roth IRA, and the earnings on those contributions can either be moved into a Traditional IRA, or you can pay regular income tax on them to convert them to the Roth IRA as well. Since you are doing a conversion of pre-tax money anyway, it doesn't matter if you have other pre-tax money, as you are already paying regular income tax on it. Anyway, since it's a 401(k) to IRA conversion, I don't believe the pro rata rule applies.

So, having an existing pre-tax Traditional IRA does not interfere with the mega backdoor Roth. If you wanted to do a regular backdoor Roth in addition, it would indeed be an issue, and you'd have to roll it in to your pre-tax 401(k).

  • "Since you are doing a conversion of pre-tax money anyway, it doesn't matter if you have other pre-tax money" It doesn't matter if you have other pre-tax money, but it could matter if you have post-tax money, if you are converting from Traditional IRA to Roth IRA. However, you can convert directly from 401(k) to Roth IRA, not going through Traditional IRA, so what money you have in Traditional IRA doesn't matter.
    – user102008
    Jan 15, 2018 at 15:43
  • @Craig W, did you mean to say 'since you are doing a conversion of after-tax money anyway, it doesn't matter...'? If so then yes, that is my intention and hence, the pro-rata rule won't apply to me, correct? If you meant pre-tax in the above stmt then that is NOT my case.
    – mistwalker
    Jan 15, 2018 at 19:52
  • @user102008, thanks for clarifying. Basically there are issues only when one mixes pre-tax and after-tax money in an account. As long as one can keep them separate and the conversions clean then it doesn't matter (for the purpose of a mega backdoor) how many and what kind of other IRAs one may have, right?
    – mistwalker
    Jan 15, 2018 at 19:55
  • @mistwalker I actually meant pre-tax because I'm talking about the earnings on the after-tax contributions, which is essentially equivalent to pre-tax money. Either way, your existing pre-tax Traditional IRA shouldn't be a problem.
    – Craig W
    Jan 15, 2018 at 19:58
  • Aah, I see. Makes sense now, thanks a ton @CraigW :)
    – mistwalker
    Jan 15, 2018 at 20:00

Yes, you will have the issue.

It doesn’t matter if the moneys are practically separated by accounts, providers, or even by time; the IRS considers them ‘mixed’ if they were in the same class of savings during the same calendar year.

The consequence of the mixing is not that you cannot do it, it just makes the tax filing a lot more complex. Your different providers will not know about each other, so their statements will not reflect the mix. You will have to do all the math during the filing, and it becomes complicated to follow the instructions.

  • I agree that separate accounts don't matter, but I'm not sure how an existing pre-tax traditional IRA would interfere with the mega backdoor Roth. As far as I know a pre-tax tIRA only interferes with the regular backdoor Roth.
    – Craig W
    Jan 15, 2018 at 13:55
  • 1
    It's true that the pre-tax and after-tax money in the Traditional 401k are mixed. However, when you rollover the Traditional 401k to IRA, you can unmix them by having the pre-tax money to go Traditional IRA and after-tax money go to Roth IRA.
    – user102008
    Jan 15, 2018 at 14:54
  • Thanks for the explanation @aganju. However, I don't have any (pre/post tax) contributions to these betterment IRAs. They only contain rolled over employer-401ks from a few years ago. Does what you said still apply?
    – mistwalker
    Jan 15, 2018 at 19:58
  • 1
    @mistwalker A rollover IRA is the same thing as a pre-tax Traditional IRA. As I mentioned in my answer, it would interfere with the regular backdoor Roth IRA, but not the mega backdoor Roth IRA.
    – Craig W
    Jan 16, 2018 at 13:25

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