Hi guys, it looks like I'll be able to do a Mega Backdoor Roth at my job and therefore have all my investment contributions in tax-advantaged accounts. That's great, but this mega backdoor stuff is complicated and I have questions. The main issue is to do with my Traditional IRA. I have some that is a rollover from a previous 401(k) and I am not sure how it affects this stuff.
From what I understand, the main reason that this guide(http://thecollegeinvestor.com/17561/understanding-the-mega-backdoor-roth-ira/
) suggests eliminating your existing tIRA is to eliminate tax complications. I'm not sure what the issue is or why that is important. From what I understand, I can take my after-tax contributions to my 401(k) and make distributions or roll it over directly to my Roth IRA. The earnings from the time between the contribution and the rollover will need to be taxed to put it into my Roth IRA, but that's fine. I wouldn't want to take the option of putting the earnings into a Traditional IRA to avoid taxes on it as I assume this is where the tax complexities come in.
Does this method avoid the tax complications that the guide references? If my understanding is correct, the Traditional IRA will not be involved at all, so it shouldn't subject those funds to taxation. Is there something I'm missing? From what I understand, paying taxes on the earnings will simply involve getting an additional 1099 from the receiving Roth IRA institution and I simply treat it as income and it is taxed as such. Is that very hard?
If I have to move my tIRA funds into my 401(k) (reverse rollover), is there any tax complications with that as well?