BD Roth + 401k Rollover
Client has been doing back door roth conversions, the last occured in April 2025 and he as a balance in his non-deductible T-IRA which we planned to convert before year end. He has left his employer and has a 100% pre-tax 401k to rollover. Correct that need to wait until 2026 to avoid the pro-rata rule, b/c if the 401k rollover gets to a T-IRA before 12/31 and he has Roth conversions in 2025 (which he does already) that would trigger pro-rata rule? If correct, converting 100% of the non-deductible T-IRA in Dec 2025 then completing the rollover of his pre-tax 401k in Jan 2026 woudl work?
Permalink Submitted by Alan - IRA critic on Thu, 2025-10-09 13:17
You are correct that a 401k rollover completed this year would result in Form 8606 applying taxes to the conversion on a pro rated basis. If the 401k rollover is delayed until 2026, the 2025 conversion will not be affected. However, if client want to continue doing the back door Roth after this year, the 401k should be kept in place unless it has a very small balance that can be converted without spiking the taxes.