Will the 100% pretax funds in a traditional IRA from an old 401k be subject to prorata if you rollover the traditional IRA account into your current employer's 401K plan?
If you file taxes jointly, the non working spouse is able to contribute to an Ira as if they were working. The term to search for is spousal Ira if you want to do more research.
@Andre - I almost missed the pro-rata part! Good call out. I have past 401ks from my time at Meta and Uber, wondering if I can roll a current Ira into those accounts or it has to be a current employer. I’m not with a startup so the options aren’t as robust for the 401k I don’t think.
i am in the same boat, still have rollover IRA from bfore, but still able to contribue to META megabackdoor contributions for last 2 years without any tax penalty, . am i doing something wrong or do i need to rollover from earlier IRA to meta 401K?
You are good! The meta after tax 401k (mega back door) is distinct from the back door Roth IRA. No issues with the pro rata rule when specifically dealing with mega back door.
Thanks so even if I have $$ in my previous traditional IRA , I can still max out meta 401k mega back door Roth contributions without rollover the IRA ? But I thought your recommendation was to rollover the IRA before begin META mega backdoor contributions , am I missing something ?
The need to roll a rollover Ira into your workplace 401k only applies off you want to do the back door Roth for $7k. It isn’t related to the after tax 401k within the meta plan.
Say a "friend of mine" failed to report backdoor Roth conversion on his taxes for several years, but the taxable amount for most years (i.e., Form 1099-R 2b) = $0. Worth the hassle of filing amended returns to correct this?
Beyond my expertise. My non-expert thoughts: I don't believe you need to refile since it doesn't impact your taxes, but probably worth ironing out what you need to do to get the form 8606 submitted to document the contribution. Will make your life easier if you ever need to access contributions pre-retirement age.
Hi Andre - thanks for the great information regarding pro-rata. I was not aware of the rule to rollover earlier traditional IRA to META 401k before doing mega back-door contributions, and have been maxing pout mega back-door roth contributions throughout 2024. What do you suggest now since this is end of year - do fidelity rollover before Dec 31st, 2024 or wait till Jan 2025 to do the rollover? Thanks a lot!
Hello Andre, thank you for your post. I have a question regarding the conversion from a traditional IRA to a Roth IRA. I have already maxed out the mega-backdoor and am now trying this. In this step, can/should I use the same Roth IRA account in Fidelity that I have funded via the mega-backdoor? Or should I open another Roth IRA specifically for the backdoor?
Hey Andre! I had contributed $6500 to my Traditional IRA and converted it into ROTH IRA. I gained some interested in my Traditional IRA (<$2) during the end of the month. This automatically got covered to ROTH IRA. Is this considered excess contribution ? Is there anything I'll have to do to withdraw excess ?
I thought you could exchange your mutual funds to those that are offered by your 401K plan and then get them transferred from Rollover IRA to the 401K without having to liquidate them. Wouldn't save any time but at least you will continue to be in the market just incase there are some wild swings while you were cashed out.
BTW, I noticed you were buying FPADX instead of your fav FZILX. Are you further diversifying your Intl allocation?
Ahh, the fidelity rep told me it needed to be in cash. It would be more ideal if you could just transfer the funds in-kind if you matched the funds in your 401k.
Re: FPDAX, good eye. This what I previously used prior to FZILX existing. All that Roth is currently in FPDAX so to keep it simple I just went with that. Also has the added benefit of being able to keep automatic reinvestment of dividends without worrying about any tax loss harvesting in my taxable account (but I wasn't optimizing for this).
Will the 100% pretax funds in a traditional IRA from an old 401k be subject to prorata if you rollover the traditional IRA account into your current employer's 401K plan?
Hi Andre - I didnt quite understand how my non-working spouse can contribute to IRA.
She is a stay at home mom for long time now and never had any IRA or 401K account in US.
If you file taxes jointly, the non working spouse is able to contribute to an Ira as if they were working. The term to search for is spousal Ira if you want to do more research.
Hi Andre! I didn’t know this and hadn’t moved my existing rollover IRA into my employer’s 401k account yet
but already opened up a traditional IRA and deposited money in there already
Is this a problem? Would you suggest stopping here before converting the trad to a Roth IRA?
@Andre - I almost missed the pro-rata part! Good call out. I have past 401ks from my time at Meta and Uber, wondering if I can roll a current Ira into those accounts or it has to be a current employer. I’m not with a startup so the options aren’t as robust for the 401k I don’t think.
I don’t believe you can roll it into the 401k of a past employer… but it is worth a call to Fidelity to confirm. Lmk!
i am in the same boat, still have rollover IRA from bfore, but still able to contribue to META megabackdoor contributions for last 2 years without any tax penalty, . am i doing something wrong or do i need to rollover from earlier IRA to meta 401K?
You are good! The meta after tax 401k (mega back door) is distinct from the back door Roth IRA. No issues with the pro rata rule when specifically dealing with mega back door.
Thanks so even if I have $$ in my previous traditional IRA , I can still max out meta 401k mega back door Roth contributions without rollover the IRA ? But I thought your recommendation was to rollover the IRA before begin META mega backdoor contributions , am I missing something ?
The need to roll a rollover Ira into your workplace 401k only applies off you want to do the back door Roth for $7k. It isn’t related to the after tax 401k within the meta plan.
Awesome post.
Say a "friend of mine" failed to report backdoor Roth conversion on his taxes for several years, but the taxable amount for most years (i.e., Form 1099-R 2b) = $0. Worth the hassle of filing amended returns to correct this?
Beyond my expertise. My non-expert thoughts: I don't believe you need to refile since it doesn't impact your taxes, but probably worth ironing out what you need to do to get the form 8606 submitted to document the contribution. Will make your life easier if you ever need to access contributions pre-retirement age.
Hi Andre - thanks for the great information regarding pro-rata. I was not aware of the rule to rollover earlier traditional IRA to META 401k before doing mega back-door contributions, and have been maxing pout mega back-door roth contributions throughout 2024. What do you suggest now since this is end of year - do fidelity rollover before Dec 31st, 2024 or wait till Jan 2025 to do the rollover? Thanks a lot!
The terminology gets tricky.
Are you referring to the backdoor Roth or mega backdoor? They are two different things.
Mega backdoor Roth specifically for meta 401k
Hello Andre, thank you for your post. I have a question regarding the conversion from a traditional IRA to a Roth IRA. I have already maxed out the mega-backdoor and am now trying this. In this step, can/should I use the same Roth IRA account in Fidelity that I have funded via the mega-backdoor? Or should I open another Roth IRA specifically for the backdoor?
I’ve always used the same Roth.
Hey Andre! I had contributed $6500 to my Traditional IRA and converted it into ROTH IRA. I gained some interested in my Traditional IRA (<$2) during the end of the month. This automatically got covered to ROTH IRA. Is this considered excess contribution ? Is there anything I'll have to do to withdraw excess ?
I’m actually in a similar boat for the same reason. I rolled the remaining $0.80 in my case into my Roth.
It isn’t an excess contribution since it is part of the conversion. I believe there will be tax owed on that amount.
I’ll let you know if I run into anything when I do my taxes in the next month.
I thought you could exchange your mutual funds to those that are offered by your 401K plan and then get them transferred from Rollover IRA to the 401K without having to liquidate them. Wouldn't save any time but at least you will continue to be in the market just incase there are some wild swings while you were cashed out.
BTW, I noticed you were buying FPADX instead of your fav FZILX. Are you further diversifying your Intl allocation?
Ahh, the fidelity rep told me it needed to be in cash. It would be more ideal if you could just transfer the funds in-kind if you matched the funds in your 401k.
Re: FPDAX, good eye. This what I previously used prior to FZILX existing. All that Roth is currently in FPDAX so to keep it simple I just went with that. Also has the added benefit of being able to keep automatic reinvestment of dividends without worrying about any tax loss harvesting in my taxable account (but I wasn't optimizing for this).