Form 8606 and some $ in 401k

[I am He]

I'm looking for the most tax efficient way to do the conversion. We did about a 40% conversion in Dec. I’m still filing extensions, so I haven’t completed this as of yet, hoping for some guidance.

$600k IRA + $175k 401k containing about $15k after tax contribution and converted $280k in ’19.

Do I add them up to $775 and claim $15k post tax for the pro rata rule or must I wait until that $175k is rolled over into the IRA?

If there’s an option to do it either way, is one more tax efficient? We did about $280k in conversion so I could take it as a “free and clear” conversion of 280 of the 600. Or do I do 280 of 775 and list the 15 of “basis?”

I thought that the typical backdoor way was to try and always clear out the IRA every year to avoid the pro rata rule as long as possible but maybe I’m missing something? Since the post tax contributions are still in the 401k, I suppose I could roll just the pre-tax contributions and leave the $15k until the very end but don’t know if that’s the way to go or just roll it all into the IRA this year?

We’re planning to slowly convert the rest over the next decade or two before taking SS, around $25k/year (we FIRE’d last year at 52/55.

 

[kaneohe]

Take a look at the 8606 and try filling it out. It only asks about TIRA values at yr end........so the 401K is out of the picture until it appears in a TIRA by yr end.

 

[purplesky]

I'm looking for the most tax efficient way to do the conversion. We did about a 40% conversion in Dec. I’m still filing extensions, so I haven’t completed this as of yet, hoping for some guidance.

$600k IRA + $175k 401k containing about $15k after tax contribution and converted $280k in ’19.

Do I add them up to $775 and claim $15k post tax for the pro rata rule or must I wait until that $175k is rolled over into the IRA?

If there’s an option to do it either way, is one more tax efficient? We did about $280k in conversion so I could take it as a “free and clear” conversion of 280 of the 600. Or do I do 280 of 775 and list the 15 of “basis?”

I thought that the typical backdoor way was to try and always clear out the IRA every year to avoid the pro rata rule as long as possible but maybe I’m missing something? Since the post tax contributions are still in the 401k, I suppose I could roll just the pre-tax contributions and leave the $15k until the very end but don’t know if that’s the way to go or just roll it all into the IRA this year?

We’re planning to slowly convert the rest over the next decade or two before taking SS, around $25k/year (we FIRE’d last year at 52/55.

You should be able to do a mega roth direct transfer with your 401k after tax $15000.
If you have a Roth IRA have your 401k provider transfer the after tax money to your Roth.
The tax form issued from this transaction will show a taxable amount from the $15000 if there are gains.

Hopefully your 401k provider allows the mega roth option.

Hope this helps.

 

[I am He]

So, yeah, the Mega Roth is the goal. Any difference if I ask them to keep the 15k inside the 401k (until last) and convert the balance or should I completely roll over the entire $175 and then have the 15k be listed on the 8606 every year (and it then slowly depletes over time).

Any direction if one way is more tax efficient? I'd assume by keeping the 15k inside the 401k would be the least paperwork until it finally goes into the t-IRA.

 

[Sunset]

Doing the Mega Roth is much more tax efficient than allowing the money to flow into an IRA and then slowly removing the non-taxable amount each year over the next 30 yrs or so.

Reason is because the $15K wherever it is located will earn $$$. Inside the Roth the earned $$$ is tax free always. Inside the IRA you will be taxed on the earned $$$ when you withdraw it.

 

[SevenUp]

I'm looking for the most tax efficient way to do the conversion.

What is "the" conversion?

I.e., are you looking to use the Backdoor Roth process to contribute new money to a Roth IRA?

Or are you looking to do a Roth IRA conversion with existing money in traditional accounts?

 

[purplesky]

So, yeah, the Mega Roth is the goal. Any difference if I ask them to keep the 15k inside the 401k (until last) and convert the balance or should I completely roll over the entire $175 and then have the 15k be listed on the 8606 every year (and it then slowly depletes over time).

Any direction if one way is more tax efficient? I'd assume by keeping the 15k inside the 401k would be the least paperwork until it finally goes into the t-IRA.

I would do The mega backdoor Roth with the $15,000 of after-tax 401K money first.
The sooner the $15,000 is in your Roth IRA the better for tax free growth And it’s out-of-the-way from the other money.

You could probably do it today over the phone and have it in your Roth IRA Next week.

Your 401(k) Will provide the tax document for the mega Roth.

I do the mega Roth every year from my 401(k) after-tax account and it’s very straightforward.

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