IRA back door pro data

[rhonwall14]

Hi,

I was hoping to do the back door IRA conversion but made huge mistake. I already had traditional IRA account with account balance from previous years, then contributed $7k for 2024 on 27 the December 2024, then did $7k Roth conversion on Jan 10th when i did this i didn't clearly understand backdoor rule. Is there way to move the money back without pay tax or penalty? The goal was to use backdoor for 7k to Roth without paying any taxes. What are best option?

For example: let say the traditional IRA account already $100k and contributed $7k in December 2024 contribution IRA and did Roth conversion on 10th Jan 2025.

To make matter worse, i also contributed $7k to traditional ira for 2025 in Jan 20th, 225 and did Roth conversion end of jan 2025.

What is my best option now to get around this, is there any way to avoid paying taxes?

I have not received any 1099 R as I expected year 2024 1099 r to be issued in in 2026 and i assume 2025 1099 R will be issued 2026 as both conversion for year 2024 and 2025 were done jan 2025. What do need to this year to report to IRS?

Thank You

[fanfare]

By law, once a conversion is done, you cannot undo it.

You are stuck with the consequences of your actions.

@rhonwall14 

[DanaB27]

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 perform the Backdoor Roth procedure. But it only works if your employer allows it, not all plans do.

On your 2024 return you will report your nondeductible Traditional IRA contribution for 2024 and TurboTax will add the 2024 Form 8606 with the basis on line 14:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed
6. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
7. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
8. Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
9. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

[dmertz]

As fanfare said, there is no option to undo a Roth conversion.

Regarding the "reverse" rollover that DanaB27 suggests, since you have already converted to Roth in 2025 and amount equal to your basis in nondeductible traditional IRA contributions, you would have to roll over to an employer plan all of your remaining traditional IRA funds.  That would cause all $14,000 of your basis to be applied to your $14,000 of Roth conversions.  If you can't do this rollover, only about 12% of your Roth conversions will be nontaxable and 88% of your basis in nondeductible traditional IRA contributions will remain in your traditional IRAs to be applied to future ordinary traditional IRA distributions.  Not what you originally intended, but not necessarily a huge mistake since it just means you will be paying some additional taxes with your 2025 tax return instead of paying taxes on this amount in the future.

[rhonwall14]

Hi Dana,

Thank you for the reply. Here is little more details if you can provide guidance. Sorry about this/

I have the following.

  1)  Existing 401k (contributed to the plan this year and max out my contributions $23k). Could I still move pre-taxed Traditional IRA funds to this account?  Will it cause any issue or contribution cap limit or anything?

2) I also have Rollover pre-taxed (traditional) brokerage IRA account, which was used to transfer my old employer 401k funds to this account. Could I do reverse rollover to this account, move my funds from traditional IRA to this rollover IRA? 

3) Let's I don't do anything. My understanding pro rata rule calculation is $7000 / $107000 = 0.065, thus $7000 x 0.065 = $457.94 can be converted using back door, the rest amount $6.542.06 would be taxed. Would this be regular income tax rate? once I pay those taxes.  Do I just leave the rest of money Roth in IRA, or do have to return excess contribution or destruction? 

Timeline for 2024 pre-taxed contribution and Roth conversion

        --- $100k already existed in traditional IRA as 01-dec-2024

        --- $7k funded on27-dec-2024 to traditional account toward 2024 contribution

        ---$7k Roth conversion done on 10-Jan-2025

Timeline for 2025 pre-taxed contribution and Roth conversion

         --- $100k already existed in traditional IRA as 20-Jan-2025

        --- $7k funded on 20-Jan-2025 to traditional account toward 2025 contribution

        ---$7k Roth conversion done on 30-Jan-2025

Thank You

[rhonwall14]

Hi Thank You for your help, I provided little more details on this thread. Any additional guidance would be greatly appreciated.

Thank You

[DanaB27]

1) Yes, you can move the pre-tax funds  to the 401(k) if your plan allows it. A rollover isn't a new contribution, therefore a rollover doesn't affect your contribution limits.

2) Please note, in the IRA's eyes all Traditional/SEP/SIMPLE IRAs are one account. Therefore, your rollover IRA would count too and you would have to include the value of this rollover account when TurboTax asks about the value of all of your Traditional/SEP/SIMPLE IRAs on December 31, 2025. If you want to avoid the pro-rata issue you would have to do the reverse rollover for this account as well.

3) Yes, the amount taxable with this conversion will be taxed at your regular income tax rate. Yes, you can leave the converted fund in the Roth IRA. There is no limit on the amount you can convert. You do not have an excess contribution.

[rhonwall14]

Hi Dana,

Let's say my plan does allow reverse rollover from Traditional IRA to 401k. Since I did the Roth conversion for 2024 and 2025. Is there a deadline when i have to complete the reverse rollover?

Basically, i will move all my existing IRA balance to 401k plan which will bring my traditional IRA balance $0 thus allowing me take full advantage for backdoor conversion.

Thank You

[dmertz]

"Is there a deadline when i have to complete the reverse rollover?"

The distribution from the traditional IRA must occur by the end of 2025 so that the 2025 year-end value in traditional IRAs is zero.