Retirement tax questions

Great question about moving funds from a pre-tax retirement account to an after-tax retirement account!

If I understand your question correctly, you have a 401k account with all pre-tax contributions, a Traditional IRA account, and a Roth IRA account. You have started moving funds in 2023 from the Traditional IRA to the Roth IRA, and now want to start moving the 401k balances  to ultimately end up in the Roth IRA account.

In a simplified situation, if all your contributions to the Traditional IRA were deductible contributions, then you can proceed in any order you wish - i.e. you can move the 401k to the Traditional IRA, then move those funds to the Roth IRA, knowing that the total amount you move from the Traditional to the Roth will be taxed in the year you move the funds to a Roth IRA.

However, it seems based on your question that you may have mixed contributions in your Traditional IRA currently - that is, some contributions that were deducted on tax returns, and some contributions you made when your income was too high, so they are non-deductible contributions.  if this is the case, then your IRA account has a mixture of pre-tax and after-tax dollars in it.

if you choose to move part of your Traditional IRA balances to a ROTH IRA, then the IRS says you have to calculate the amount of the funds moved over that represents the pre-tax amount and the after-tax amount. You must do this in a pro-rata manner, based on the relative percentages of deductible and non-deductible contributions in the account.

However, you may be able to skip a step to the Traditional IRA completely, as the IRS does allow a rollover from an employer plan into a Roth IRA.  You can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):

Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. 

You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you hadn’t rolled them over into a Roth IRA. You don’t include in gross income any part of a distribution from a qualified retirement plan that is a return of basis (after-tax contributions) to the plan that were taxable to you when paid.

In your situation, it may be easier moving the funds directly from the 401k to a Roth IRA, as you would know the exact dollar amount that will be taxed to you in the year you move the funds.

For more information on moving funds from your 401k directly to a Roth IRA, see IRS Publication 590-A, page 44.