Backdoor Roth Mistake

[dumpbikes]

In March of 2024, I made maximum contributions to an IRA for tax years 2023 and 2024.  I am above the income threshold, so these contributions were not deductible from my income.  In April of 2024, the IRA was converted to a Roth (Backdoor Roth).  Now the mistake...  An old 401k worth about $2500 from a previous employer was converted to a Rollover IRA in March of 2024.   I was not aware that this 401k had converted to an IRA (I should have been!) when we did the Roth conversion.    I am getting ready to do my 2024 taxes - my financial advisor says that the fact that I have this other IRA is a problem... but he didn't know how to fix it.  

[DanaB27]

It is too late to fix it for your 2024 return.  Since you had pre-tax funds from your 401k rollover in your traditional IRA now the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. 

The Backdoor Roth only works if all of your traditional/SEP/SIMPLE IRAs are empty.  If you plan to use this strategy in the future you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.