Just started doing after-tax contributions to a 401k last year with the plan of performing a mega back door Roth strategy. I thought I could just transfer the contributions to an outside Roth IRA, but it turns out that you also have to transfer out the gains. I have a choice of transferring to a traditional IRA or also to the Roth
Obviously, if I transfer to a traditional IRA, I don't have to realize any taxes now. I'm just wondering how difficult this will make my regular back-door Roth conversions, having never had to worry about the pro-rata rule.
1. How hard is the pro rata rule to calculate out if you use Turbotax? Would you convert the gains to a Roth, so that the year-end traditional balance is 0, taking the tax hit to simplify future back-door Roth contributions?
2. Or would you just give up on making back-door Roth conversions and let the traditional grow, keeping in mind that if we end up switching jobs and losing the Mega-back door roth option, that the backdoor Roth is now complicated by a significant traditional balance?
3. I already did a backdoor Roth conversion for 2026. At the time of the conversion, there was nothing left in the trad IRA. If I now do a Megabackdoor Roth conversion, my trad IRA balance will not be zero on December 31, 2026. Will that affect the backdoor Roth conversion that was completed before the Megabackdoor?