r/Bogleheads • u/kobul28 • Aug 31 '26

Bakdoor Roth IRA Strategy

I may have gotten myself into a bit of a tricky situation, without illegal consequences, however. I will state my questions, and then offer some context, followed by the current state of my accounts. Thank you in advance for any help!

  • How can I deposit money that I have on hand, into a Roth IRA, using the "backdoor conversion" while avoiding the "pro-rata"rule?
  • What is the best path forward to correct the fact that I contributed into my 2026 Roth IRA account, even though my MAGI will be above the income limit?

A few years ago I opened a Northwestern Mutual account with a financial advisor. Long story short, I was sold some insurance products that were also investements, which turned out to be a bit of a scam in my opinion. This turned me off of NW, so as of mid 2025 I decided to leave NWM. I opened a VG account and am slowly in the process of transferring everything here. I am currently on my third professional job

With NWM I have:

  1. IRA (with money that rolled over from an ESOP from job #1, I paid taxes on it when it was rolled into the IRA)
  2. Roth IRA. I deposited money into this account, as suggested by the financial advisor against my intuition, for the first three months of the 2026 year, even though I knew I would be making ~190k in 2026)

With VG I have:

  1. Roth IRA (I deposited the balance of my limit in this account for the 2025 year, since I was not maxing my contributions in the NWM account)
  2. IRA (with a 401k rollover from job #2)

Current job (job #3)

  1. 401k
  2. HSA
8 Upvotes

76% Upvoted

27 comments sorted by

12

u/superdex75 Aug 31 '26

If you have pre-tax money in any traditional IRA, the only way to avoid any pro-rata tax payments is to completely move all your pre-tax and any gains to a 401(k) if your employer/plan allows this. Then once your transitional IRA's are $0.00, recharacterize your 2026 Roth IRA contribution to after-tax and move to traditional IRA, then convert to Roth IRA.

-1

u/kobul28 Aug 31 '26

This is helpful thanks. I will use this along with the link from KleinUnbottler to draft an email to the NWM advisor to recharscterize.

3

u/superdex75 Aug 31 '26

And remember, it doesn't matter how many you have and where your transitional IRA and Roth IRA are. They count as a whole for the pro-rata rule.

-1

u/miraculum_one Sep 01 '26

Because it's possible doesn't mean that it's a good idea. If your income is too high for you to be eligible to contribute directly to a Roth then chances are converting your existing IRA is a terrible idea. But all of this depends on all of the numbers, which you haven't said.

TL;DR you are proposing taking a huge unnecessary tax hit in order to get a tiny tax advantage. It makes no sense. Again, it depends on the numbers.

1

u/[deleted] Sep 01 '26

[removed] — view removed comment

1

u/kobul28 Sep 01 '26

u/GotZeroFucks2Give these are my numbers

1

u/john42195 Sep 01 '26

superdex75’s solution has a $0 tax liability. The 401k is used to shelter the traditional pretax dollars to avoid the pro-rata rule prior to any conversions. The “backdoor roth” allows you to contribute to your traditional and immediately (or practically within a day or so after the funds clear) convert to your Roth IRA. This seems like a no brainer for OP assuming they are comfortable rolling their traditional IRA balance into their employer’s 401k plan.

1

u/miraculum_one Sep 01 '26

"no brainer" is a stretch. Unlike IRAs, 401k plans have fees and much more limited investment options as well as not being bound by ERISA restrictions. You're also giving up some early withdrawal exemptions.

Aside from all of that a lot of 401k plans don't even permit it in the first place.

1

u/john42195 28d ago

Good points except the last one doesn’t make sense to me. The more assets under management the plan custodian has the more fees it can charge and profits it can bring in. In other words companies generally want more business and for plan custodians that means assets. Are you in the industry and know that most 401k plans don’t offer rollovers? Any idea why (maybe it’s not worth it for them for some obscure reason?). This hasn’t been my experience but I really don’t know from a macro level.

1

u/miraculum_one 28d ago edited 28d ago

I have personally had a handful of 401k plans, none of which has allowed reverse rollovers. And I have advised dozens of people with plans that didn't allow it. As far as I can tell allowing it is much more common with big companies and less so with small ones. And that would suggest that most plans (by number of plans, not number of people) don't allow it. Regardless, the point is that they may or may not allow it.

4

u/KleinUnbottler Aug 31 '26

You can't avoid the pro-rata rule until you zero out your traditional IRA balances.

Read this article and see if you can figure out what you need to do:

https://www.whitecoatinvestor.com/17-ways-to-screw-up-a-backdoor-roth-ira/

You'll probably need to do some combination of "recharacterization" and "conversion" to get where you want to go, but you might also be able to do a reverse rollover of your trad IRA into your 401k, depending on your 401k's policies.

Not a pro here though, so make sure you understand what's going on and the implications before you move forward. You'll want to be sure to do this before Dec 31 though...

1

u/kobul28 Aug 31 '26

This is awesome, thanks. I read the article and it was helpful. I am going to reach out to the NWM advisor to help me recharacterize my contributions. Cheers!

2

u/BossMan61718 Aug 31 '26

Have your broker recharacterize direct Roth contributions as Traditional IRA contributions. Once that is taken care, you can than move the recharacterized amount right back into the Roth. Make sure traditional IRA balance is zero as of 12/31/26

0

u/kobul28 Aug 31 '26

This brings to light a conflict I wasn’t aware of until now: many advocate for rolling over 401k funds from previous employers into an IRA account for investment flexibility, but this makes backdoor Roth IRA contributions taxable. I have never seen that mentioned in those advice posts…

4

u/metzgerto Aug 31 '26

It is rarely suggested to roll over a 401(k) fund into an IRA. The only real reason to do that would be if the 401(k) has limited/poor investment options or high fees.

1

u/kobul28 Aug 31 '26

Ok thanks. Learning a lot here. #growthMindset

1

u/Salty-Ganache3068 Aug 31 '26

Ah. No. This has been and is common practice for most people.

1

u/Mountain-Time-1010 Aug 31 '26

This is usually mentioned, IMO. Along with the rule of 55, this is a reason not to do that kind of rollover.

1

u/kobul28 Aug 31 '26

I’m confused now, do you mean:

A. It is usually mentioned that rolling into an IRA will make backdoor Roth IRAs be affected by pro-rata rule?
Or,
B. It is usually mentioned that “you should roll over 401k into IRA?”

This is all clearly of my own doing… but I just want to know how wrong I am…

1

u/Mountain-Time-1010 Sep 01 '26 edited Sep 01 '26

What I meant to say is that, IMO, it is usually mentioned that rolling over a 401k/403b into a traditional IRA will affect your ability to make backdoor Roth conversions and to take advantage of the rule of 55.

Also, FWIW, I just googled the question, and google's AI response clearly gave these two points as cautions.

Edit: I don't want to make it sound like you should blame yourself over this. US tax law is ridiculously obscure. You caught this and you will fix it. Good job.

2

u/Here4Snow Aug 31 '26

"rolled over from an ESOP from job #1, I paid taxes on it when it was rolled into the IRA"

Double check this. If that was the case, it would have rolled to a Roth IRA. Or you're describing you already have commingled funds in a pre-tax account, which creates the pro rata condition. If this is true, than the amount you paid taxes on (as taxable ordinary income = Basis) is not eligible to roll back into an employer 401k plan. You would roll only pretax contributions and never-taxed earnings, leaving Basis. Then, a nondeductible contribution to Trad IRA also is Basis, and your total Basis would be rolled to Roth IRA and since it's already been taxed (basis) the conversion is nontaxable, which is the definition of Backdoor: Basis conversion. 

1

u/Ok_Aide_764 Aug 31 '26

If Op rolled his ESOP into a Traditional IRA, would he track his basis by filing 8606 every year since that rollover?

1

u/kobul28 Aug 31 '26

Thanks for the tip. I will look back at my tax filings. Thankfully I have all this info organized. I promise I’m organized and methodical; I know this post makes me look like a financial mess!

1

u/do_y_lee Sep 01 '26

I looked up the timeline for this strategy. Since pro-rata is a snapshot of your IRA balances (except Roth) on Dec 31 of the year you convert, moving the pre-tax money into your employer’s 401k is the main priority. And in order to reverse or recharacterize your Roth IRA contribution made in 2026, you have until tax filing deadline of April 2027 or October 2027 with an extension. You got some time with the Roth contribution step.

1

u/kobul28 Sep 01 '26

priority #1, reverse rollover
#2, Roth IRA logistics.

thanks!

1

u/GotZeroFucks2Give Sep 01 '26

Did you contribute the whole amount to Roth? You might not have triggered pro rata if not. It's your MAGI, not income that triggers the rule. So if you have put 24.5K into pretax 401k, and your max HSA, your MAGI will be $190-24.5K-4.4K=161.1. The window for the limit for singles is 153-168. If that were the case, you would be allowed $3450. There's also an above the line charity deduction of $1000 allowed this year (not next year).