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Comment by isaacdl | Hacker News Reader

I'd love to move the account (especially after this!), but unfortunately I can't because of what is basically an annoying side-effect. My current employer doesn't offer a 401k plan, and the only option I have for contributing to a Roth IRA is via backdoor contributions. Such backdoor contributions (which are basically an IRS-sanctioned loophole) have to start in a Traditional IRA account, and you cannot have any other/pre-existing Traditional IRA funds at the time of the contribution. So, I have nowhere to move the 401k funds besides an IRA account, but I have to leave my traditional IRA accounts empty so that I can do a backdoor contribution.

I wish the federal government would just get rid of the salary cap for direct contributions to a Roth IRA, since they basically already allow it via the obnoxious and convoluted path.

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What the actual f%%%! I just looked it up. Not that I didn’t believe you. I just never looked into it.

For reference for others…

https://investor.vanguard.com/investor-resources-education/a...

I’m both under the limit to contribute to a Roth since I am married and my company offers an “after tax 401K” (different than a Roth 401k) and I’m over 50 so I can do catch up contributions.

I’m a long way before I need to worry about backdoor contributions.

FYI you can do backdoor Roth contributions even if you already have an IRA with funds in it. It's just more complicated because you have to follow the pro rata rule.

The PITA of that is that you have to keep track of the post tax additions pretty much for ever afterward or you’ll end up paying double tax on them.

And if you have hundreds of thousands or millions in the traditional. The pro rata rule would make your backdoor contribution 90+% taxed so it would be pointless

No. Pro rata is Latin for “in proportion.” It’s one dollar for one dollar. If you add $7k to your tIRA to do the backdoor Roth, you also must convert $7k of existing funds which becomes taxable income. So you pay your marginal tax rate, on half the amount.

IMO not that big of a deal to contribute $7k, convert $7k, and pay $2-3k in taxes to get $14k in the Roth space that will grow tax free forever. Most people are too pre-tax heavy in their retirement strategies anyway.

I'm not familiar with the strategy you're describing, but this is not how it works for the majority of backdoor Roth contributors.

If you have $100k pre-tax in a trad IRA, contribute 7k after tax for the purpose of rolling into a Roth, then you will owe income tax on the proportion of 100/107*7k, or $6,542.

You're still limited to 7k annual (for 2025) so the 14k you describe must be something else.

The confusion here is that trad IRAs can be pretax or posttax dollars.

This rule only matters if you have pretax dollars in an IRA that you want to also use posttax dollars to backdoor.

To be clear, it wouldn't be taxed at 90% in this example. It's that 90% of the conversion amount would be taxed as ordinary income.

AFAICT there's no extra paying taxes here or anything. Your pretaxed dollars are being taxed, instead of posttax dollars not being taxed.

If you roll a 401k into an IRA, those will be pretax dollars in the IRA. It doesn't take a very big rollover to completely swamp the tax benefits of a 7k annual Roth contribution limit.

>The pro rata rule would make your backdoor contribution 90+% taxed so it would be pointless

All contributions or conversions to Roth IRAs are after-tax dollars.

you can create a solo 401k that contains both a traditional and roth account, and roll over from your old employer's 401k to the traditional solo 401k, and do a conversion to the roth account

there are caveats to this, like always being attached to your solo 401k plan makes you ineligible for contributions to an IRA all the time, but you will be able to have rollovers into the IRAs, you also might decide that the solo 401k is a superior product to IRAs in every way

if you are not currently eligible to create a solo 401k, it is very easy to become eligible with a single dollar of 1099 or schedule C income the year you make it, and then it can exist in perpetuity

corroborate that with your licensed professionals. many gurus overlook the solo roth 401k mostly due to SEO and their audience of professionals that associate "401k" with "corporate employer thing", as opposed to something at parity with a traditional and roth IRA and expanded in capability

This is really interesting. I'd considered a solo 401k at one point because a made a small amount of self-employment income in one year, but decided against it because it wasn't enough to be worth the hassle, and I didn't expect to keep having self-employment income. Now I wish I had gone through it, just so I'd have a place to roll over this old 401k. (Of course, now that I look, Vanguard doesn't do solo 401ks anymore and redirects to Ascensus, so might just be frying pan to fire anyway.)

> now that I look, Vanguard doesn't do solo 401ks anymore

Vanguard wouldn't need to know it was a solo 401k, they would just see a trust being signed up. There are other institutions that you can go into mutual funds or get similar exposure from who are more acclimated to solo 401k entities though.

>if you are not currently eligible to create a solo 401k, it is very easy to become eligible with a single dollar of 1099 or schedule C income the year you make it, and then it can exist in perpetuity

No, your scenario is not "very easy". No custodian is going to handle a solo 401k based on one dollar of self employed income (and 1099-NECs aren't issued for such tiny amounts anyway). You are also overlooking the overhead of maintaining a 401k, such as plan updates every time related federal tax law changes, or the potential IRS reporting requirements, which can generate significant penalties if overlooked.

yeah, in the 10 years I've had one, the compliance is just a notice from the "document provider", and a 5500-EZ document annually. the bank, brokerage and crypto exchange accounts have no monthly/annual fees.

OP can also just use the solo 401k's roth balances as a temporary holding place to then pass through directly to the roth ira

The expanded investment options are worth it alone. And the years where there is self employment income, the expanded contribution limit up to doing my own $70,000 employer match saves literal years of contributions off my life.

It's literally 10x what the IRA contribution guys get, and most of them are barely able to even reach the IRA contribution max.

There are more tax deferral plans out there too, I'm willing to do that compliance.

Merrill Lynch is usually good about that sort of thing. You're right that you wouldn't _only_ have the $1 401k, but they're fine having a few phantom accounts here and there to execute your financial strategies, and they'll stay on top of inconvenient legal changes for accounts they know about.

>the only option I have for contributing to a Roth IRA is via backdoor contributions

Here's a simple idea: roll over your 401k, and then take the $7K (or whatever) you were going to put into the Roth and instead use it to pay the tax on a conversion of $20K. Much bigger bang for the buck.

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