Backdoor Roth Conversions with 401K Rollovers

Question

In a related question to this one, I currently participate in backdoor Roth conversions (i.e., I contribute $5,500 annually to a Traditional IRA, then convert it to my Roth IRA prior to investing it in the t-IRA).

My question is: if I roll over my 401K to a Traditional IRA, but then keep a separate Traditional IRA for my backdoor conversions, does the whole IRS pro-rata effect still take place? My intuition says yes, because Traditional IRAs are considered a unified thing irrespective of how many Traditional IRA accounts you have (which is why you can only contribute $5,500/year across all accounts, not per account). Is my rationale correct?

Answer 1

My question is: if I roll over my 401K to a Traditional IRA, but then keep a separate Traditional IRA for my backdoor conversions, does the whole IRS pro-rata effect still take place?

Yes. Due to the IRA Aggregation Rule, the pro-rata rule considers the amounts in all Traditional IRAs, regardless of whether they may be in one or many accounts.

Therefore, if you want to be able to keep your ability to do backdoor Roth IRA conversions, you should not rollover pre-tax amounts from your 401(k) into Traditional IRA, and keep them in your 401(k) (either keep them in the existing one, or roll them over into a new one if you get a new job with one).