The regular rollover process is well-known: electing to move funds from an employer 401(k) to an IRA after changing jobs. But the reverse rollover is far less common. As the name implies, a reverse rollover is the opposite of this. It involves moving money from an IRA into an employer-sponsored retirement plan (401(k), 403(b), etc.).
The primary use case for a reverse rollover is cleaning up the issues that non-deductible IRA contributions can trigger: the pro-rata tax rule, ongoing recordkeeping requirements, and the risk of paying tax twice.
What Is A Reverse Rollover?
If permitted by the retirement plan, a reverse rollover allows current employees to transfer pre-tax contributions from an IRA to a 401(k) or other type of employer plan. Only pre-tax contributions are eligible.
To find out if your 401(k) accepts reverse rollovers and for more information on how to do it, contact your retirement plan administrator.
Pro-Rata Rule Workaround: Separating Pre-Tax And After-Tax IRA Contributions
Unlike after-tax Roth IRA contributions, which go into a Roth IRA, the only way to make after-tax non-deductible contributions is in a traditional IRA. This often creates ongoing headaches. First, the taxpayer must keep records indefinitely or risk paying tax twice. And second, because of the pro-rata rule, if you make both deductible and non-deductible IRA contributions, you’ll still owe taxes on a portion of every withdrawal. This is true even if you maintain multiple traditional IRAs to track contributions (though few do).
A reverse rollover can help fix this by allowing pre-tax money and investment growth to roll into a 401(k). After completing a reverse rollover, the remaining IRA balance (all basis) can be converted to a Roth IRA tax-free. If you haven’t already done so, you’ll need to tally all prior non-deductible IRA contributions and file the IRS form 8606. Whether or not you do a reverse rollover, you’ll need to do this to avoid paying tax twice on your after-tax non-Roth additions.
Example:
Drake has a traditional IRA with a current value of $80,000, which consists of:
- $30,000 in non-deductible contributions
- $50,000 in pre-tax (deductible) contributions and investment earnings
If Drake’s employer 401(k) plan allows reverse rollovers, he could transfer $50,000 to his current 401(k). To complete the cleanup, he can convert $30,000 to a Roth IRA. Both moves would be tax-free!
Pros And Cons Of Doing A Reverse Rollover
As with any financial decision, you’ll want to consider all factors relevant to your situation and goals before moving forward. Although not an exhaustive list, here are some key benefits and drawbacks when transferring money from an IRA to a 401(k).
Advantages:
- Only way to avoid the ongoing tracking requirements for non-deductible IRA contributions or circumvent the risk of paying tax twice
- Better control of your tax situation when taking money out in retirement as fully taxable and tax-free buckets are separated and the pro-rata rule no longer applies
- Reverse rollovers do not trigger income tax or penalties
- Preserve the tax-deferred tax treatment of pre-tax contributions and earnings growth
- Ability to convert basis (your after-tax contributions) to a Roth IRA without recognizing income (essentially a backdoor Roth conversion)
- Qualified plans generally offer enhanced creditor protection relative to IRAs
Drawbacks:
- Not all employer retirement plans allow it
- 401(k)s and other qualified plans typically have limited investment options
- The rules can change
Access Considerations: IRA Versus 401(k)
Depending on the person, ease of access to retirement money can be a feature…or a bug. Ideally, workers maintain proper emergency cash reserves and early access to an IRA or 401(k) is unnecessary. However, before moving forward with a reverse rollover, understand some of the caveats regarding access.
- Employees over age 73 (in 2026) can defer RMDs on their 401(k) if they’re still working and don’t own more than 5% of the business (IRA rules don’t permit this).
- Only employer retirement plans can offer loans.
- Depending on the situation, both IRAs and 401(k)s could be structured to provide penalty-free withdrawals before age 59 1/2. This is called the Rule of 55 in 401(k)s or through substantially equal periodic payments (SEPP) in an IRA or 401(k). Note that for the Rule of 55, the participant must have separated from service on or after they reach age 55. Although SEPPs can begin at any age, payments must continue for at least five years or until you turn 59½, whichever is longer. Not all 401(k) plans permit one or both options.
- Without a SEPP, money in an IRA generally isn’t available penalty-free before age 59 1/2; however, exceptions exist that aren’t available in 401(k)s, (like first-time homebuyer and higher education expenses).
Cleaning Up Non-Deductible IRA Contributions With A Reverse Rollover
Again, the main reason to consider a reverse rollover is to undo the long-term headaches that after-tax IRA contributions create. Investors often put money in an IRA because they aren’t sure of their other options. While tax-advantaged accounts have great features, they also come with a lot of rules.
You might also consider investing excess cash in a brokerage account. As a taxable investment account, there are no contribution limits or withdrawal requirements. Investments held for more than a year also qualify for long-term capital gains tax rates when the asset is sold. This is typically more favorable than the tax treatment of pre-tax withdrawals from a 401(k) or IRA, which are subject to regular income tax rates. Consult your financial and tax advisor to discuss your situation.
Kristin McKenna is a Forbes contributor. Examples in her articles are generic, hypothetical and for illustration purposes only and should not be misinterpreted as personalized advice of any kind or a recommendation for any specific investment product, financial or tax strategy. This general communication should not be used as the basis for making any type of tax, financial, legal, or investment decision. If you have questions about your personal financial situation, consider speaking with a tax and financial advisor.
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