Pro-Rata Mistake Advise

[firemane]

I am in a strange situation where I did not know about the pro-rata rule. I never made over the roth income limit until a couple of years ago, so it was never previously on my radar. I suspect that this type of mistake is common and I assume is part of IRS's design :P. The answer may be that it is not worth doing anything, but I thought some extra sets of eyes could help.

Situation:

Me: Rolled over a ~ 310k (current value) 401k to a traditional IRA earlier this year. There was nothing wrong with where it was, I just thought rolling it over was what you do as that is what I had always heard, and I had left the company a few years prior. My new employer 401k had higher fees, so I thought a rollover tIRA made sense. This rollover was pretty much an immediate in kind transaction since the 401k was with vanguard. I am not sure what my options are here. I could probably roll the rollover IRA into my new 401k, which has a little bit higher fees, but the bigger risk I see is that I would probably have to take the money out of the market for a period of time. Since it is a decent sized account, it may not be worth the risk, especially since the new account has higher fees (0.4% ish for sp500).


Partner: Will probably go over roth limit next year per IRS. Partner rolled over 50k years ago from a prior 401k, but then rather than keeping the rollover account separate, partner added some additional tIRA contributions to the same account as the rollover. The account is about 100k total. Partner has a great 401k. Would a rollover be possible when the rollover portion and personal contribution portion is intermingled in the same account?


Note, I see the backdoor roth as a nice perk, but since the max contributions in an ira are quite low, taking on a lot of risk with moving accounts may simply not be worth it.

[seattlecyclone]

You may each be able to roll your pre-tax IRAs into your 401(k). It depends if the plan accepts incoming rollovers from traditional IRAs. Many do. Some do not. Remember these are individual accounts, so for example if your partner rolls their IRA into their 401(k) they could do a backdoor Roth next year even if you leave your money where it is.

[firemane]

You may each be able to roll your pre-tax IRAs into your 401(k). It depends if the plan accepts incoming rollovers from traditional IRAs. Many do. Some do not. Remember these are individual accounts, so for example if your partner rolls their IRA into their 401(k) they could do a backdoor Roth next year even if you leave your money where it is.

I am pretty sure that it does allow it, however, not sure if it will let you move ANY tIRA into it, or if I have to somehow work with the brokerage to figure out the cost basis of what was purchased with only the portion that was rolled over from the 401k?

[solon]

For the slackers in the back, can you define "Pro-Rata Mistake"?

[firemane]

For the slackers in the back, can you define "Pro-Rata Mistake"?

I watched this video when I was ready to look into this, and after the section starting at 7:40 some expletives were yelled

https://www.youtube.com/watch?v=iD-M5Bxjv00

[seattlecyclone]

There's a thing called a "conduit IRA" that consists only of funds rolled in from an employer plan. Once you contribute more money it loses its "conduit" status. My understanding is there was a time when only conduit IRAs were allowed to be rolled back into employer plans, but that hasn't been the law since 2001. I could perhaps envision that some employers haven't updated their plan terms to take advantage of that rule change and still have retirement plans that only accept incoming rollovers from conduit IRAs but not other traditional IRAs, but I'd guess that's rare these days.

[firemane]

There's a thing called a "conduit IRA" that consists only of funds rolled in from an employer plan. Once you contribute more money it loses its "conduit" status. My understanding is there was a time when only conduit IRAs were allowed to be rolled back into employer plans, but that hasn't been the law since 2001. I could perhaps envision that some employers haven't updated their plan terms to take advantage of that rule change and still have retirement plans that only accept incoming rollovers from conduit IRAs but not other traditional IRAs, but I'd guess that's rare these days.

Thanks, I have never heard of a Conduit IRA, but sounds like ours is not a condiut IRA since other funds are intermingled, and additionally, unless the new 401k is using highly outdated policies, it shouldn't matter whether it is a conduit or not