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Roth conversions and pro-rata rule
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Date: December 5th, 2025 11:31 PM Author: ,.,,,. If I do pretax 401k-> roth conversion , can I do posttax contributions->roth same year or that would trigger pro-rata? Or as long as I don't do them at the same time, no? (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487711) |
Date: December 5th, 2025 11:36 PM Author: Kenneth Play (emotional girth) i think the only way you run into issues with the pro rata rule is if you hold any pretax money in IRAs. do you?
it's no problem if all your IRAs are roth already |
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Date: December 5th, 2025 11:43 PM Author: ,.,,,. I'm switching jobs and plan to do pretax401k->roth. Not sure yet if the conversion is direct or it goes 401k->traditional ira-> roth. If it does touch traditional ira and then immediately converted, would it affect my post tax conversions on the same year? I.e. on january1st I usually put $7000 posttax ira->roth (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487732) |
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Date: December 5th, 2025 11:43 PM Author: ,.,,,. I hold pretax only in 401ks (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487734) |
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Date: December 5th, 2025 11:57 PM Author: Kenneth Play (emotional girth) oh! the pro rata rule is only an issue on IRAs not 401ks. On 401ks, it's no problem at all if you have mostly pretax money in it, but occasionally make an after tax contribution. you can easily call up vanguard or fidelity or whatever, and say i want to convert only the after tax portion to an in plan roth conversion (if supported by your plan) (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487747) |
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Date: December 6th, 2025 12:22 AM Author: ,.,,,. In plan conversion not supported. Which is why I'm doing pretax-> outside roth conversion after leaving work (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487802) |
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Date: December 6th, 2025 12:26 AM Author: Kenneth Play (emotional girth) i bet it's fine if you can roll over your existing 401k with after tax contributions to a new employer 401k plan that offers in plan roth conversions, and do the roth conversion on the after tax contributions piece only.
if you're rolling the 401k into an IRA, i think you get fucked by the pro rata rule because you've got a bunch of pretax money in an IRA. |
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Date: December 6th, 2025 12:38 AM Author: ,.,,,. Can I convert directly from pretax401k to roth? And if instead I have to go 401k->ira->roth , then for how long does it trigger pro-rata? I.e. I cannot do any posttax conversions same year or as long as I complete this transaction my ira is 0 again? (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487837) |
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Date: December 6th, 2025 11:40 AM Author: Kenneth Play (emotional girth) for any money you currently have as pretax/traditional in an IRA or 401k, if you want to convert it into a roth, you're generally going to pay ordinary income rates on the conversion - so if your income is high as a doctor this is generally not going to make sense to do.
the above excludes backdoor roth conversions on an IRA (which if your salary is above the threshold, you make the aftertax contribution and then immediately convert to roth), and mega backdoor roth with aftertax contributions if your 401k plan allows it. but these are usually aftertax contributions, not pretax/traditional which it sounds like you are talking about. |
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Date: December 6th, 2025 11:44 AM Author: ,.,,,. Yeah I plan to convert pretax from 401k from old job to roth so I pay tax from savings account but don't pay tax on future gains. I.e. over 20years that account might gain 1million on which I wouldve paid ordinary tax. But I also do posttax backdoor roth and hope this single pretax401k->roth will not mess with my posttax conversions. (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49488398) |
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Date: December 6th, 2025 11:48 AM Author: Kenneth Play (emotional girth) what's your current marginal tax rate? it's hard to imagine it would be lower in retirement, no?
but if you're converting your entire pretax 401k to roth, you're paying the whole amount as ordinary income. this is the situation that people are trying to avoid when they complain about the pro rata rule. if you're happy paying the extra tax to convert everything, it's a non issue |
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Date: December 6th, 2025 1:05 PM Author: ,.,,,. I'm in the top tax bracket and in retirement I plan to be in lower tax bracket for whatever new 401k I contribute from now on. If I convert old job 401k to roth I figure paying tax on it is acceptable. I just don't want to be double taxed if I do additional posttax/backdoor roth same year(that's where prorata is a concern). (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49488594) |
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Date: December 6th, 2025 1:22 AM Author: .,.,,...,...,..,....,...,...,... The better question is why the fuck are you doing a Roth conversion when you are in the highest tax bracket? That makes zero sense. The only possible justification is if you think tax rates will go up in the future, but it is very doubtful that they will go up enough for this to be a good idea. (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487870) |
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Date: December 6th, 2025 1:38 AM Author: ,.,,,. I figured that even if my tax rates are lower in retirement over 20years or 30years that's extra 1million that I can accumulate in taxable income, or I can just pay 50k cash from my savings account now. Basically the further u are from retirement the more you gain from putting money into roth (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49487876) |
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Date: December 6th, 2025 11:42 AM Author: Kenneth Play (emotional girth) it's not intuitive, but my view is that the sole factor on whether it makes sense to do traditional or roth is expected tax rate now vs retirement. for most current lawyers or doctors, it makes sense to fill up the traditional bucket and get the deduction in the current year. and then contribute whatever you can aftertax via backdoor roth IRA or mega backdoor 401k (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49488394) |
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Date: December 6th, 2025 11:47 AM Author: ,.,,,. Yes that's what I thought and what I plan to do in the future. Exception being old401k is better to convert now and then just accumulate new pretax401k. But I do plan to also do next year solo401k with pretax employer contribution plus after-tax employee->backdoor roth. I'll open custom 401k to do that. (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49488400) |
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Date: December 6th, 2025 2:06 PM Author: .,.,,...,...,..,....,...,...,... No, that's not correct. Assuming you invest the money that you would have paid in taxes on a Roth conversion, if your tax rate in retirement is the same as it is now, you will end up with exactly the same amount of money in retirement regardless of whether or not your do the conversion. In other words, it never makes sense to do a Roth conversion if you expect to be in a lower tax bracket in retirement. You will end up with more money if you invest the $50k you would have spent on taxes and then pay the tax later at a lower rate. Now if you would spend the $50k on dumb goy shit rather than investing it if you don't do the conversion, that's another story. But it's not advantageous to pay tax now if you will be in a lower tax bracket later. (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49488743) |
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Date: December 6th, 2025 2:40 PM Author: Kenneth Play (emotional girth) cr (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49488820) |
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Date: December 6th, 2025 1:11 PM Author: ,.,,,. Look at this:
Let's say you have 100k pretax 401k. You converted it to roth and paid 40k cash to irs from your savings.
Now you let that 100k grow into 1million over 20 years. You then either take it tax free or pay ordinary income tax on that million. Sure you would also have extra 40k in your taxable brokerage that could theoretically grow to 400k and equal to the value of that tax, but is that realistic? Each time you sell stock in the brokerage it's a taxable event. In roth I can buy and sell bitcoin and qqq limitless. Besides I'll have plenty in regular brokerage account |
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Date: December 6th, 2025 1:41 PM Author: ,.,,,. Actually the main reason to do 401k conversion now instead of later may be the choice of investment. 401k is whole market index. While in roth I can keep going in and out of qqq, tqqq, bitcoins.
It's true I could convert 401k at a lesser tax rate in the future but maximum difference would be about 13%, i.e. 24% versus 37%. So it's really a question about whether wholemarket index would outperform my personal investments in qqq, spmo, tqqq |
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Date: December 6th, 2025 2:09 PM Author: .,.,,...,...,..,....,...,...,... If you want to eat a huge tax hit so that you can gamble with bitcoins, you're almost certainly going to end up with far less money than if you simply left your money in an index fund in a traditional 401k. Something like 80% of professional money managers can't beat an index fund. LJL at an autistic doctor beating the market by gambling with high volatility assets. But it's your money, and you can do whatever makes you happy with it. (http://www.autoadmit.com/thread.php?thread_id=5806858&forum_id=2Elisa#49488753) |