This sounds like a good strategy. Here are some things to consider before you execute your plan.
1. Will this strategy create any tax issues?
If executed correctly, this should not create a major tax bill, but there is a specific order of operations you must follow:
- You cannot roll after-tax money into a 401(k). Most 401(k) plans are only allowed to accept pre-tax rollovers. You must ensure that the $65k you move into the 401(k) consists only of your pre-tax contributions and any earnings.
- The "Basis" stays behind. Your after-tax contributions (your "basis") must stay in the IRA. When you convert that remaining $15k to a Roth IRA, only the portion that exceeds your basis (any growth on those after-tax funds) will be taxable.
- Form 8606 is your best friend. You must have filed Form 8606 for 2023 and 2025 to track those after-tax contributions. When you do the conversion, you’ll use this form again to show the IRS that the $15k you converted was already taxed.
2. Does this approach help avoid the pro-rata rule?
Yes. The pro-rata rule only aggregates "Traditional" IRAs (including SEP and SIMPLE IRAs). It specifically excludes qualified employer plans like 401(k)s.
By moving the $65k of pre-tax money into your 401(k) before December 31, 2026, your "Total IRA Balance" for the pro-rata calculation will only be the $15k remaining in the IRA. Since that $15k is almost entirely after-tax basis, the "taxable ratio" of your conversion drops significantly.
3. Does this setup make sense for 2026 Backdoor Roths?
Yes. This is the "cleanest" way to set yourself up for recurring Backdoor Roth contributions.
- Once you convert that $15k and effectively empty your Traditional IRA, your balance at the end of the year will be $0.
- In 2026, you can contribute the maximum ($7,500, or $8,500 if you're 50+) as a non-deductible contribution to your Traditional IRA and immediately convert it to Roth. Since there's no pre-tax money left in any IRA to "taint" the conversion, the process becomes a simple, tax-free transfer.
4. Crucial Checklist for Success:
- Check with your 401(k) provider: Verify that your specific plan allows "roll-ins" from a Traditional IRA. Not all plans do.
- Verify the Basis: Look at your most recent Form 8606 to find your exact "Total Basis." If your after-tax contributions were $13k and the account grew to $15k, you will owe taxes on that $2k difference when you convert.
- The Dec 31 Deadline: The 401(k) rollover must be completed and your IRA balance reduced by December 31 of the year you perform the Roth conversion. If the money is still in the IRA on New Year's Eve, the pro-rata rule will catch you.
