I currently have a self-directed Roth IRA (used for real estate and private deals) along with a 401k, HSA, and regular IRA.

The regular IRA is from 401k rollovers from previous employers but is decent in size (~$150k).

I'm thinking of trying two different things… roll this into my existing 401k (essentially wiping the IRA out) and then starting the new backdoor/mega backdoor route on a new Roth.

Few questions… can I do this and avoid the taxation penalty of converting? I know that when you convert anything to a Roth you're supposed to take an allocation calc on your total IRA balance to tax. I'd like to avoid all of that and just start dropping in my annual backdoor conversion.

Can I backdoor that my existing self-directed Roth or do I need to stick with something simple like just a vanguard Roth?

Ideally, I'd like to put into the self-directed that way I can keep growing the pie on RE and PE deals but also have the flexibility of holding liquid stocks there in between investments.

TLDR - can I convert an existing IRA to a 401k and then start backdooring into a regular Roth or an existing Roth?

Are you wanting to backdoor, mega-backdoor, or both?

Either way you need to talk to your plan provider.

If you just want to mega-backdoor, I don't think you need to worry about the existing rollover IRA, but again talk to your provider about that.

If you want to do a regular backdoor and not pay any tax on the Roth conversion, you need to talk to your plan administrator and see if they will allow you to roll your existing IRA into your 401k.

Some plans allow for everything you want to do, some don't and some may allow for one or the other.

hypeiv said:

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Are you wanting to backdoor, mega-backdoor, or both?

Either way you need to talk to your plan provider.

If you just want to mega-backdoor, I don't think you need to worry about the existing rollover IRA, but again talk to your provider about that.

If you want to do a regular backdoor and not pay any tax on the Roth conversion, you need to talk to your plan administrator and see if they will allow you to roll your existing IRA into your 401k.

Some plans allow for everything you want to do, some don't and some may allow for one or the other.

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So first step is to ask Fidelity if they'll roll my IRA? Gotcha.

Honestly, I'm not familiar at all with Mega-backdoor or what that entails.

Really, I just want to get back to putting 6k/year into something tax free. My long term plan is to have my Roth invested in cash flowing real estate that will generate tax free, monthly income.

Then have taxable accounts provide the difference at a much lower tax bracket.

ChoppinDs40 said:

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hypeiv said:

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Are you wanting to backdoor, mega-backdoor, or both?

Either way you need to talk to your plan provider.

If you just want to mega-backdoor, I don't think you need to worry about the existing rollover IRA, but again talk to your provider about that.

If you want to do a regular backdoor and not pay any tax on the Roth conversion, you need to talk to your plan administrator and see if they will allow you to roll your existing IRA into your 401k.

Some plans allow for everything you want to do, some don't and some may allow for one or the other.

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So first step is to ask Fidelity if they'll roll my IRA? Gotcha.

Honestly, I'm not familiar at all with Mega-backdoor or what that entails.

Really, I just want to get back to putting 6k/year into something tax free. My long term plan is to have my Roth invested in cash flowing real estate that will generate tax free, monthly income.

Then have taxable accounts provide the difference at a much lower tax bracket.

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Not a bad idea but you should read up on all of the restrictions on this type of investing. There are quite a few things to trip on that can drastically impact potential tax savings.

Stymied said:

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ChoppinDs40 said:

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hypeiv said:

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Are you wanting to backdoor, mega-backdoor, or both?

Either way you need to talk to your plan provider.

If you just want to mega-backdoor, I don't think you need to worry about the existing rollover IRA, but again talk to your provider about that.

If you want to do a regular backdoor and not pay any tax on the Roth conversion, you need to talk to your plan administrator and see if they will allow you to roll your existing IRA into your 401k.

Some plans allow for everything you want to do, some don't and some may allow for one or the other.

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So first step is to ask Fidelity if they'll roll my IRA? Gotcha.

Honestly, I'm not familiar at all with Mega-backdoor or what that entails.

Really, I just want to get back to putting 6k/year into something tax free. My long term plan is to have my Roth invested in cash flowing real estate that will generate tax free, monthly income.

Then have taxable accounts provide the difference at a much lower tax bracket.

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Not a bad idea but you should read up on all of the restrictions on this type of investing. There are quite a few things to trip on that can drastically impact potential tax savings.

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do tell... the administrator I'm using specializes in this... the investments are made via partnerships and come back to the administrator.. I imagine distributions just come from that account later down the road.

Probably not advisable but I'm swinging for the fences on some of these. With 0 access to it and not much principal investment allowed in the Roth, I'm targeting ~15% returns until retirement at which point I'll reallocate to cash flowing/liquid investments.

If he knows what he is doing, you are probably fine. Investing in real estate partnerships is much cleaner than if the IRA itself is owning the real estate asset. Many people get excited when their hear about self directed IRAs and start thinking they can invest in real estate in standard methods (i.e with leverage, working on them themselves, etc).

If you're with Fidelity and your plan allows it, you can allocate excess contributions to your existing 401k to a Roth. That's the mega-backdoor. You should be able to to this in addition to having a separate Roth that you put $6k a year (or whatever the current max is) in.

At least that's what I was told when I spoke with Fidelity about this. I have an existing Roth, and they said if I wanted to do after tax 401k contributions, they could allocate it as a Roth. I would not be able to see the difference when I log in to check my 401k balance, as they just take care of the paperwork behind the scenes.

TXTransplant said:

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If you're with Fidelity and your plan allows it, you can allocate excess contributions to your existing 401k to a Roth. That's the mega-backdoor. You should be able to to this in addition to having a separate Roth that you put $6k a year (or whatever the current max is) in.

At least that's what I was told when I spoke with Fidelity about this. I have an existing Roth, and they said if I wanted to do after tax 401k contributions, they could allocate it as a Roth. I would not be able to see the difference when I log in to check my 401k balance, as they just take care of the paperwork behind the scenes.

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hell yes. Although I'd rather work with Vanguard.

I max my 401k but wouldn't mind putting more after-tax dollars into a roth... I think getting it into my self-directed one may be a little harder.

I'll reach out to those guys on that.

Make sure you get someone who knows what they are talking about. We have designated reps for our company.

I never had a regular IRA and had a 403b when I opened my self-directed Roth. I now have to do the backdoor contribution to that, since I'm over the income limit, and I do that through an IRA. But that IRA was opened specifically to do the backdoor Roth (and there is no money in it).

Talking to my Fidelity rep, the mega backdoor Roth via your 401k is a totally separate thing. I haven't started contributing yet (inflation has messed up my financial mass balance), but it's on my radar to start that up. The contributions will go to the same funds my pre-tax contributions go to. The catch is, your employer has to have a plan that allows it - ask if in-service distributions are allowed. If yes, you're good to go.

There is also a cap on this - if your employer allows it, you can't exceed $40.5k in after-tax contributions (you do have to account for your employer 401k match when determining your max). I think for most of us corporate America slaves, that's not an issue.

This is what the Build Back Better bill proposed earlier this year tried to eliminate.

*note this is just how I understand it and I am not an expert and likely wrong*

Backdoor Roth = making a non deductible contribution to a regular IRA then Roth converting it a Roth IRA. This type of conversation is subject to pro-rata rules if you already have pre tax money in another IRA.

Mega backdoor Roth = making non deductible contributions to your 401k account and when you leave the company or take an in-service distribution you roll the pretax money into a traditional IRA and the post tax portion into a Roth IRA. If you roll the pre tax portion into a regular IRA and the post tax portion into a Roth, you will only taxes on the gains in the post tax portion.

Where people get crossed up is not following the Roth conversion rules correctly but for a mega-backdoor Roth there is no Roth conversion, it's more of a rollover.

hypeiv said:

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*note this is just how I understand it and I am not an expert and likely wrong*

Backdoor Roth = making a non deductible contribution to a regular IRA then Roth converting it a Roth IRA. This type of conversation is subject to pro-rata rules if you already have pre tax money in another IRA.

Mega backdoor Roth = making non deductible contributions to your 401k account and when you leave the company or take an in-service distribution you roll the pretax money into a traditional IRA and the post tax portion into a Roth IRA. If you roll the pre tax portion into a regular IRA and the post tax portion into a Roth, you will only taxes on the gains in the post tax portion.

Where people get crossed up is not following the Roth conversion rules correctly but for a mega-backdoor Roth there is no Roth conversion, it's more of a rollover.

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gotcha.

The first thing is the main hurdle. I've got to get to get rid of that regular IRA by rolling it into my 401k if I can. Then I can start backdooring a new $0balance IRA every year and also mega backdoor as I see fit.

Why do you want your Roth to own real estate. Most if not all real estate cash flows but is a tax loss year over year because of depreciation. Thus cash flowing real estate is tax free to begin with. Roth would actually not be the best spot for this. I would have the Roth invest in ordinary income producing investments that would otherwise add to your tax bill.

CPAAg said:

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Why do you want your Roth to own real estate. Most if not all real estate cash flows but is a tax loss year over year because of depreciation. Thus cash flowing real estate is tax free to begin with. Roth would actually not be the best spot for this. I would have the Roth invest in ordinary income producing investments that would otherwise add to your tax bill.

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It'll be mostly in REIT and partnership like investments that throw off ordinary income (dividends).

But yes, depreciation and lack of k1 income is a nice plus to real estate.

However, the way I'm building that balance is different, mostly through buy/sell private operating company deals and RE deals where gains come into play. I'd rather those continue to compound, tax free.

For example, a RE deal I did just sold. 139% IRR. Taxes would've gobbled a good bit up that up. Instead I can turn right back around and keep going.

I've got plenty of exposure to the market (max 401k, HSA), put additional funds into taxable brokerage every month along with a crowd sourced REIT.

I know I have heard about maximum salary limitations on having Roth but it seems they are all the rage today?

who is expert enough to discuss the advantage of using a NON-Roth IRA versus just taking after tax salary and pumping it into a private Fidelity Brokerage where I buy individual stocks?

"Non-Roth" or Traditional IRA gains will be taxed based on your ordinary income tax bracket.

Your brokerage gains would be taxed at capital gains tax rates (assuming they are in there at least a year).

If you don't currently have a Traditional IRA then do a Backdoor Roth and salary limitations won't matter (yes, you can do a backdoor ROTH even with Traditional IRA, but there are tax implications for that).

***not an expert by the way***