Pro Rata Rule for Backdoor Roth IRA - Did I mess up with my 401k rollover?

So just to make sure I understand - if they move the trad IRA money to their current 401k before Dec 31, it's like the money was never in the trad IRA to begin with for pro rata purposes? And does it matter that the backdoor Roth happened before the rollover into the trad IRA?

Yes, that's exactly right. If you move all pre-tax IRA money into a 401k before December 31st, then for pro rata calculation purposes, your IRA balance would be $0 on that date. The IRS only cares about your IRA balances on December 31st of the year you do the conversion, not what happened during the year. The timing of the backdoor Roth versus the rollover doesn't matter at all for pro rata calculations. You could do the backdoor in January and the rollover in December, or vice versa - the IRS only looks at that December 31st snapshot of your IRA balances.

What's the catch with this service? Does it cost money? And does it actually give personalized advice or is it just general info you could get elsewhere?

Can it actually tell you if your specific 401k plan will accept rollovers or do you still need to contact your plan administrator about that? That seems like the critical piece here.

There's no catch - it's just a super useful tool. Yes, there is a small fee, but it's way less than what you'd pay a tax pro for the same advice, and definitely less than what you'd pay in taxes if you mess up the pro rata rule. It absolutely gives personalized advice. You upload your specific documents and get tailored recommendations, not generic info. It identified exactly how much I needed to move out of my Traditional IRA to avoid pro rata issues based on my specific situation. You're right that you'll still need to contact your plan administrator to confirm they accept rollovers. The tool gives you the exact questions to ask though, and even provides a template email you can send to your 401k administrator. It makes the whole process much easier.

Wait how does that even work? Do they have some special access to the IRS or something? Seems sketchy that a third party can somehow get you through the phone queue faster.

I dunno, sounds too good to be true. I've literally spent hours on hold with the IRS and you're saying this magically gets you through? What's the success rate like? And how much does it cost? There's always a catch with these things.

It's nothing sketchy - they just use technology to wait on hold for you. They have an automated system that calls the IRS, navigates the phone tree, and then waits on hold. When an agent finally answers, their system calls you and connects you directly to that agent. No special access or anything. The success rate has been great in my experience. I've used it twice now and got through both times. They don't guarantee a specific timeframe since it depends on IRS wait times, but it's way better than being stuck on hold yourself. There is a cost, but considering I was able to resolve my pro rata question and potentially save thousands in taxes, it was worth every penny to me.

Wait, really? I thought the $7000 was the total annual limit for IRA contributions? So I couldn't contribute more than that across all my IRAs in a calendar year, right? Or am I misunderstanding what you're suggesting?

You're absolutely right about the $7000 limit - that's the maximum you can contribute to all your IRAs combined for the year if you're under 50. What I meant was that you can split that $7000 into multiple conversions rather than doing it all at once. So instead of contributing $7000 to a Traditional IRA and converting it to Roth all in January, you could do $1750 each quarter if you wanted to. The annual limit remains the same, but the frequency of conversions is flexible. Sorry for any confusion!

Yes, Form 8606 is absolutely required for any backdoor Roth conversion. This form tracks your non-deductible contributions to Traditional IRAs and your conversions to Roth IRAs. You need to file it for the year you make the non-deductible contribution AND for the year you do the conversion (often the same year for backdoor Roth). If you successfully move all pre-tax money out of your IRAs before December 31, your Form 8606 will show that your conversion was 100% non-taxable (assuming no earnings between contribution and conversion). If you don't fix the pro rata issue, this form will calculate exactly how much of your conversion is taxable.

Thanks for clarifying! Does TurboTax handle this form correctly or should I be looking for a tax pro who specifically knows about backdoor Roths?

TurboTax does handle Form 8606 pretty well, but you need to be careful about how you enter the information. The software will walk you through it, but make sure you accurately report the timing of your contributions and conversions. If you successfully do the reverse rollover to eliminate your Traditional IRA balance by Dec 31, you'll want to make sure TurboTax knows your IRA balance was $0 at year-end - that's the key input that determines whether pro rata applies. That said, if your situation gets complicated (like if you have multiple conversions, earnings between contribution and conversion, or other IRA activity), it might be worth having a tax pro review it at least for the first year you do this. Once you understand how it works, TurboTax should be fine for future years.