I've been above the Roth IRA contribution AGI for a while, so I'd just been tossing money into my Traditional IRA for the last 7 years. Well the stock market did great and my Traditional IRA has like $50k of gains in it.
I had no idea what a Roth Backdoor conversion was, so I never used it. The taxes on doing a conversion at this point would be around $12k, probably more due to SALT.
Roth conversion seems out right now as a result.
But my 401k allows Roth contributions. I know the traditional advice is that Roth 401k is probably a mistake, but Roth IRA doesn't seem to be an option right now, and I'm interested in "tax diversification". I don't know what will happen to tax rates in the future, but given that we're at the lowest tax rates in history, I view it as a non-zero chance that tax rates could actually go up someday, especially in the 20 years I have until retirement.
I wouldn't put the whole 24.5k 401k contribution into Roth; I'm thinking of something like 25-33%, so about 1.5-2k in taxes.
Is this reasonable? Or is it still a bad idea to do a Roth 401k even in these circumstances?
Traditional IRA grew enormous, Time to do Roth in 401k?
byu/Djamalfna inpersonalfinance
Posted by Djamalfna
8 Comments
If you feel you are in a higher tax bracket now then what you will be in retirement, do pre-tax contributions. If you feel you are in a lower tax bracket now then what you will be in retirement, do Roth 401k contributions.
If you’re not sure hedge your bets, split it up.
>I’ve been above the Roth IRA contribution AGI for a while, so I’d just been tossing money into my Traditional IRA for the last 7 years.
Each year you make a Traditional IRA, you *must* do one of two options:
* Report the contribution as *deductible*. Take the deduction if income allows for it. Sounds like this is *not* you for every single contribution in the past. You will need to clarify.
* Report the contribution as *non-deductible*. This is Step 1 of the Backdoor Roth strategy. You must file Form 8606 (each year).
So… break it down.
Every year in the past…
How’re much total in non-deductible contributions?
I would do a traditional 401k and call your plan provider to see if they will allow you to roll your traditional IRA into your 401k. Many do. If you can do that then you would be free to do a backdoor Roth IRA going forward with no worries about pro-rata taxes.
I would still convert the Trad IRA. If you are saving enough to max a 401K and an IRA, front the $12K and be glad you get a huge jump on Roth savings.
What’s your marginal tax rate? If you’re 24% or above it’s probably better to keep the 401k pretax, but like you say a little Roth 401k isn’t a bad idea. I did that for a while.
If you can take advantage of the increase in the SALT deduction, i would do the full Roth conversion now (or in the next few years). I just did it in 2025, but the SALT deduction going up from $10k -> $40k will allow me to now deduct excess property taxes as well state income taxes for me and my wife. It’ll be close to a net wash for me
If you earn so much that you can’t do direct contributions to Roth then I’d be maxing traditional 401k to lower the tax load today. If you consistently earn that much, good chance you retire early and that is your opportunity to start converting in lower tax brackets which is the goal with tax advantaged accounts.
If you have access to a 401k and can’t make Roth IRA contributions due to your income…. you likely weren’t able to deduct what you contributed to the traditional IRA.