Cleaning up your tainted IRA account

I rolled over my 401(k) from a past employer to a Rollover IRA.

With my tax / investment advisor’s suggestion, I started contributing post-tax IRA money using backdoor Roth. This means that the post-tax funds should have been immediately converted to Roth IRA.

This was not done because the IRA already contains pre-tax money and is not clean.

Merrily, I contributed post-tax non deductible IRA contributions to a polluted IRA account and did not convert it to Roth IRA. So I now have 13–14 years of gains on that money which should have been in a Roth account, growing tax free. Worse, we did the same mistake with my wife’s IRA account as well. I wish my advisor had corrected me.

However, there is a solution to at least prevent future earnings from being taxed.

You can reverse rollover your pre-tax money and post-tax gains to your current 401(k) and then what you are left with are your post-tax non-deductible contributions. You can convert the remaining post-tax non deductible contributions alone to a Roth IRA.

If you have trouble finding out what your post-tax contributions are, the form 8606 in your tax filings should have this number.

Now you are left with a IRA account with $0 balance to which you can do a backdoor contribution and immediately convert it to Roth.