Back Door Roth Ira Conversion Pro Rata Rule

The pro rata rule is used to determine the after tax amount of a roth conversion when the taxpayer has both pre tax and after tax balances in their ira s. Dear joanna a quick follow up to your previous article on backdoor roth ira conversions. Company sponsored plans like 401 k s and 403 b s are not used in the pro rata calcu lation unless rolled over to an ira in the year of conversion.

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Click here for an example of the pro rata rule calculation showing.

Back door roth ira conversion pro rata rule.

Converts the remaining 10 000 the following year. You have several options. 31 is the date the ira s are valued for purposes of making the calculation. Under the pro rata rule your ira account has a balance of 100 000 50 000 40 000 10 000 100 000.

Here s more detail on the rule. A taxpayer with a pre tax ira of 10 000 who does a 5 500 backdoor roth ira and then. So what if you have a pre tax ira account and want to make annual backdoor roth conversions without owing extra tax. This is the pro rata rule.

Would the pro rata rule apply in the case where qualified pre tax contributions were deposited into. The pro rata rule applies even if a qualified plan is rolled over after the conversion takes place because dec. Any conversion done from any ira account will be deemed to consist of some pre tax funds and some after tax funds. A method that taxpayers can use to place retirement savings in a roth ira even if their income is higher than the maximum the irs allows for regular roth ira contributions.

10 of your balance is after tax funds.

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