[Jillian]

.. Just discovered it last year. I have about $3,000 worth of growth in that bucket. From what I’ve read, I would need to roll it over into a traditional IRA to defer taxes.

Would moving the growth into a traditional IRA affect my ability to to do a backdoor Roth in the future if my income exceeds the Roth IRA limit?

It was always my understanding that traditional IRA’s need to be empty in order for a backdoor Roth to be an option…

[Jule]

Yes it would hinder the mega backdoor Roth IRA contribution. You will run into the pro rata rule until you pay the taxes and move it to Roth.

If you have access to the mega backdoor through your job, where you can convert that money to Roth within your 401k, that’s what I’d do. If that’s the case, your limit in your 401k will go to $66,000 (including match).

Note that the backdoor Roth IRA is external to your job. While the mega backdoor is through a brokerage account like Fidelity or Vanguard – unrelated to your employer’s 401k.

[Ŧeddy]

I have wondered about this myself as I have been putting the earnings into my Rollover IRA account when doing the Mega Backdoor Roth IRA to avoid taxes. My plan is to wash the Rollover IRA account by rolling everything back into my 401k before retiring early.

[Christopher]

You pay a bit more taxes if there’s a pre-tax balance in a traditional IRA, but otherwise it’s not a big deal most of the time. I’d just eat the taxes now and convert it all to Roth (assuming you can handle the tax liability, maybe about $800-$1,000 depending on your bracket and state) to keep stuff simple.

[Author]

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