How to Avoid the Pro-Rata Rule in a Backdoor Roth IRA

If your income is too high for a direct Roth IRA contribution, the backdoor Roth IRA is the workaround. But if you have any pre-tax money in a traditional IRA, the pro-rata rule can turn your supposedly tax-free conversion into a taxable mess. In this episode, Lucas and Luna walk through a concrete example: a high earner earning $200,000 in 2026, wanting to contribute $7,000 to a Roth IRA, but sitting on a $50,000 traditional IRA rolled over from an old 401(k). They explain how the pro-rata rule calculates the taxable portion of a conversion and, more importantly, how to sidestep it entirely by moving that traditional IRA into a current employer's 401(k) plan. With the IRS's aggregation rule, even a small pre-tax IRA balance can trigger unexpected taxes. Listeners learn the exact steps — checking 401(k) acceptance of incoming rollovers, understanding the tax implications, and timing the contribution and conversion in the same year. A must for anyone using the backdoor Roth strategy. #BackdoorRothIRA #ProRataRule #RothIRA #IRA #RetirementPlanning #TaxStrategy #401k #IRAConversion #HighIncome #FinancialLiteracy #MoneyManagement #FexingoBusiness #BusinessPodcast #Finance #WealthPlanning #TaxTips #RetirementSavings #2026 Keep every episode free: buymeacoffee.com/fexingo