Understanding IRA Rollover, Reverse-Rollover, and Pro-Rata Rules: How to Calculate Pre/Post-Tax Portions?

I've got myself in a bit of a muddle with my retirement accounts and need some help figuring out the correct calculations for a reverse rollover. In 2024, I made both a rollover and a backdoor Roth conversion which resulted in my rollover IRA having a mix of pre-tax and post-tax dollars. Now I want to roll this mixed IRA back into my company's 401(k) plan, but I'm not sure exactly how much I can move. Here's what happened: - I had zero dollars in traditional IRAs at the beginning of 2024 - Around March, I put $7,500 into a new traditional IRA and converted it to Roth - In July, I rolled over $78,000 from an old employer 401(k) into a separate rollover IRA When I filled out Form 8606 for 2024, I calculated: * $675 as the nontaxable portion of the backdoor ($7,500 / ($7,500 + $78,000) = 0.088 × $7,500 = $675) * $6,825 as the taxable amount (and basis in traditional IRAs) My rollover IRA has now grown to about $85,000 due to market performance. No additional contributions have been made. I understand that when doing a reverse rollover into a 401(k), I can only move the pre-tax portion. But I'm confused about how to calculate the exact amounts: Is it: - Option 1: Post-tax amount = basis divided by EOY balance? * $6,825 / $78,000 = 0.0875 * Post-tax: $85,000 × 0.0875 = $7,437 (stays in IRA) * Pre-tax: $85,000 - $7,437 = $77,563 (moves to 401k) - Option 2: Just the absolute basis amount? * Post-tax: $6,825 (stays in IRA) * Pre-tax: $85,000 - $6,825 = $78,175 (moves to 401k) Or is there another formula I should be using? What's the correct amount I can move to my 401(k)? Also, what form will I need to complete for this distribution/rollover?

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19 comments

Mason Lopez

You've got a classic pro-rata situation here. When dealing with reverse rollovers from IRAs with mixed funds, you need to be careful about the calculations to avoid tax headaches. The correct approach is your Option 2. The basis amount doesn't change with market fluctuations - it remains fixed at $6,825. This is the post-tax portion that must stay in an IRA. The rest of your balance ($85,000 - $6,825 = $78,175) is pre-tax money that can be rolled into your 401(k). This makes sense because your basis represents actual dollars you've already paid tax on, not a percentage of your account. The growth or loss happens proportionally across both pre-tax and post-tax funds, but the dollar amount of your basis stays the same. For the rollover itself, you won't need Form 5329 (that's for early distributions and excess contributions). Your 401(k) plan administrator will provide the appropriate paperwork for the incoming rollover. From the IRA side, you'll receive a 1099-R showing the distribution, and you'll need to report it on your tax return, but since it's a qualified rollover, it won't be taxable. Make sure your 401(k) plan accepts rollovers and specifically pre-tax rollovers from IRAs. Some plans have restrictions.

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Vera Visnjic

Thanks for the clear explanation! Just to make sure I understand - the basis stays fixed at exactly the dollar amount I paid tax on ($6,825), regardless of whether the market went up or down, right? So if my account had dropped to $70,000 instead of growing, I'd still keep $6,825 in the IRA and roll $63,175 to the 401(k)? Also, will this reverse rollover reset my ability to do clean backdoor Roth conversions in the future since I'll only have post-tax money in my IRAs?

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Mason Lopez

That's exactly right! Your basis remains fixed at $6,825 regardless of market performance. If your account had dropped to $70,000, you'd still keep $6,825 in the IRA and roll $63,175 to the 401(k). Yes, this reverse rollover will effectively "clean up" your IRA situation for future backdoor Roth conversions. After completing this, you'll only have post-tax money ($6,825) in your IRA. This means future backdoor Roth conversions will be much simpler - nearly all of the conversion will be non-taxable. This is actually one of the main reasons people do reverse rollovers - to eliminate pre-tax IRA balances that complicate backdoor Roth conversions.

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Jake Sinclair

I went through a similar situation last year and found this tool called taxr.ai (https://taxr.ai) that really helped me figure out my IRA calculations. I was completely stuck trying to understand the pro-rata rules for my mixed IRA funds until a colleague recommended it. What I liked was that I could upload my Form 8606 and previous tax documents, and the system analyzed everything and explained exactly how much was pre-tax vs. post-tax money in my accounts. It made the math crystal clear and even walked me through the steps for my reverse rollover. The documentation they provided made it super easy to execute the rollover correctly. For complex retirement account situations like yours with multiple transactions and pro-rata calculations, having something that can verify your numbers gives real peace of mind.

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Jake Sinclair

It works with all major retirement account types including 403(b)s and TSPs. The pro-rata rules can get especially tricky when you're moving between different account types, and the tool handles those interactions well. The tool doesn't just do basic calculations - it applies the actual IRS rules with all their complexities. It checks for things like step transactions, tracks basis across multiple years, and factors in all the exceptions and special cases in the tax code. It's basically like having a tax pro review your specific situation, but automated. I found it caught nuances in the timing of my transactions that would have caused issues with the IRS.

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Honorah King

I was in your EXACT situation about 6 months ago - mixed funds in IRAs making my backdoor Roth strategy a mess. I was skeptical about using any tools, but a friend convinced me to try taxr.ai and wow... it actually solved my problem perfectly. After uploading my tax docs, it identified that I had calculated my basis wrong for the previous two years! The tool showed me exactly how to fix my prior year 8606 forms and gave me the precise amount I could roll to my 401(k). I ended up keeping $5,280 in my IRA (all post-tax) and rolling $67,450 to my 401(k) (all pre-tax). The best part was that it generated a detailed letter explaining my calculation method that I could provide to both financial institutions handling the transfer. Neither of them questioned anything, and my reverse rollover went through without any issues. Now my backdoor Roth conversions are straightforward again!

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Oliver Brown

Listen, if you're trying to get clarity on your rollover situation, Claimyr (https://claimyr.com) saved me HOURS of frustration. I kept getting conflicting info from my 401(k) provider and couldn't get through to anyone at the IRS who could help with my pro-rata questions. After trying for days to reach someone, I used Claimyr and got connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through the exact calculation method for my reverse rollover and confirmed that only the fixed dollar basis amount stays in the IRA. She also explained that I needed to notify my IRA custodian that I was specifically transferring only pre-tax funds to avoid complications. When you're dealing with retirement accounts and potentially thousands in tax implications, sometimes you just need to hear it directly from the IRS.

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Oliver Brown

The service basically automates the calling process and waits on hold for you. When they reach a live agent, you get a call back to connect with them. It's not about skipping the line - they're just waiting in it for you so you don't have to sit there listening to hold music for hours. I had the same concerns about IRS agent knowledge, but the person I spoke with was from their retirement accounts division and really knew her stuff. She cited specific regulations and explained exactly how the pro-rata rule applies to reverse rollovers. The advice matched what my CPA later told me, so it was definitely legitimate. I've used the service three times now for different tax questions, and it's been worth it every time.

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Clay blendedgen

I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it myself since I had a complicated question about some stock options and backdoor Roth contributions. I got connected to an IRS tax law specialist in about 15 minutes (way faster than I expected), and she was incredibly knowledgeable. She walked me through the exact reporting requirements for my situation and even emailed me the relevant IRS publications that addressed my specific scenario. For OP's question about the reverse rollover calculation, the agent confirmed that the basis amount ($6,825 in your case) is fixed regardless of market performance. She also mentioned that you should get a statement from your IRA custodian specifically identifying the pre-tax portion being rolled over to avoid confusion. I'm still shocked at how helpful this was - definitely changed my view on getting IRS guidance for complex situations.

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Ayla Kumar

Something nobody's mentioned yet - make sure your 401(k) plan actually accepts partial rollovers from IRAs! I tried to do exactly what you're describing last year and found out my employer's 401(k) would only accept rollovers of entire IRA balances, not partial amounts. I had to open a separate traditional IRA, move my non-taxable basis ($3,400) into that account, and then roll the original IRA (with only pre-tax money) entirely into the 401(k). It was an extra step but accomplished the same goal. Also, when you do the rollover, be super explicit with both financial institutions about what you're doing. My IRA provider initially coded it wrong on the 1099-R which caused headaches at tax time.

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Ayla Kumar

I did a trustee-to-trustee transfer to move the basis amount to a new IRA. No special forms were needed for that part - I just made it clear to the brokerage that I was separating my basis. The only tricky part was documenting everything carefully for my tax return. I kept copies of all statements showing the original mixed IRA, the transfer of the basis amount, and then the rollover of the remaining pre-tax funds. My tax software was confused by the multiple transactions, so I ended up needing to attach an explanation to my return.

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Carmella Popescu

Pro tip: Don't forget to track your basis across different tax years! I messed this up and it was a nightmare to fix. After my reverse rollover, I forgot that I had remaining basis in my IRA. The next year, I made a new traditional IRA contribution and converted it to Roth, thinking it would be a simple backdoor Roth. But I didn't account for my existing basis on Form 8606, which completely threw off my calculations. The 8606 form is cumulative across tax years - your "basis in traditional IRAs" carries forward. Make sure you're starting with the correct basis amount from your previous year's form when you file next year.

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Natasha Ivanova

Yes, you can fix prior year basis tracking mistakes by filing amended returns (Form 1040X) for the affected years. You'll need to correct the Form 8606 for each year where the basis was calculated wrong. The key is to work backwards from the current year to identify where the error started. Start with your oldest incorrect year, amend that 8606 first, then work forward year by year. Each amended 8606 will carry the corrected basis forward to the next year. It's tedious but definitely worth doing - having the wrong basis can cost you thousands in unnecessary taxes on future conversions. I'd recommend getting help from a tax professional for this since the multi-year corrections can get complicated, especially if you've done multiple conversions or rollovers.

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