I transferred my 401k (Old employer) to a Rollover IRA about 3 years ago. Does anyone know if the IRA aggregation rule applies to a rollover IRA? I am planning to do a backdoor Roth IRA conversion.

[peterjedi]

Hello,

I had previously moved my 401k to a rollover IRA 3 years ago. I am planning to deposit a nondeductible contribution to a traditional IRA. After doing so, I plan to move the money to a Roth IRA via the Backdoor Roth IRA rule. Does the IRA Aggregation Rule apply to a Rollover IRA?

If so, then does it mean I have to transfer my rollover IRA back to a 401(k) to bypass the IRA Aggregation Rule?

Any help is much appreciated!

Best regards,

Peter

[Opus 17]

Yes, all your IRAs are aggregated.  (Except for inherited IRAs, I believe).  This is one of the potential drawbacks of rolling over a 401k into an IRA.

[dmertz]

If the 401(k) plan permits, you can roll any pre-tax money in your traditional IRAs to the 401(k) to remove this money from being part of your year-end balance at the end of the year that you roll the money back to a 401(k).

[Opus 17]

Sorry, I missed the second half of the question,

"If so, then does it mean I have to transfer my rollover IRA back to a 401(k) to bypass the IRA Aggregation Rule?"

Normally, you can't take money out of a 401k unless you are retired or otherwise separated from service with the employer.  So I am going to assume that you no longer work for this former employer.  

If you work for a new employer that also has a 401k, they may allow you to rollover your IRA funds to their 401k.  In that case, you should be able to rollover all your pre-tax IRA funds if you want to, not just the funds that came from the former employer.

I think it is less likely that your old employer will allow you to reopen your 401k if you closed it, but you could ask.

And yes, getting the money back into a 401k will avoid the aggregate rule affecting your backdoor Roth IRA conversion. 

[peterjedi]

Hello Champ,

Is it as simple as moving the Rollover IRA to new Company 401(k) then do the backdoor Roth IRA conversion immediately?

What happens after I do the backdoor Roth IRA conversion, then decide to move my money back to a Rollover IRA?

Is this okay, since when I did the Roth IRA conversion, I didn't have any other IRA or IRS will look and count for the whole calendar year?

The reason why I ask this question is because I like the flexibility to pick my own investments. Whereas a company 401(k) only offer you a fixed number of funds.

Thank you!

[dmertz]

"Is it as simple as moving the Rollover IRA to new Company 401(k) then do the backdoor Roth IRA conversion immediately?"

Yes.

"What happens after I do the backdoor Roth IRA conversion, then decide to move my money back to a Rollover IRA?"

If moved back in the same year that you do the Roth conversion, it will be as if you never moved the funds to the 401(k).

"Is this okay, since when I did the Roth IRA conversion, I didn't have any other IRA or IRS will look and count for the whole calendar year?"

No.  The timing of the Roth conversion during the year is irrelevant.  The calculation of the taxable amount is done as if the Roth conversion occurred on December 31.

[peterjedi]

Technically, I could do the backdoor Roth IRA conversion on Jan 1, 2025, then on Dec 31, 2025 move my Rollover IRA to my current employer's 401(k). Sometime in early Jan 2026, move my previously moved 401(k) back to a Rollover IRA?

Thank you for everyone's help!

Much appreciated!

[dmertz]

Technically, yes, but requesting transactions that close to the end of the year risks the IRA custodian not being able to process the request timely.  Doing the rollover to the 401(k) first ensures that the 401(k) plan will accept the rollover before committing to the Roth conversion.