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Because of this, it’s important that clients be advised to use other funds to cover the tax liability to avoid the added penalty. You may request: • A direct rollover of $80,000 in pretax amounts to a tra… In this case, you would be subject to the Pro Rata rule since there was already money in the traditional IRA. I discuss more on the mathematics of the pro rata rule in my previous article. Like Like You will need to fill out this form when contributing to or rolling over nondeductible IRA assets. For exact details, see IRS Form 8606 – Nondeductible IRAs. So my questions relate to allowed workarounds to avoid the pro-rata rule. No retroactive consequences. Let's use the amounts $15k originally in traditional (pre-tax) and added $5k (post-tax). 2. The pro rata rule applies to the accounts and the amounts you hold at the end of the tax year, not on the day you do the conversion. Now for the bad news: you will be subject to the “pro-rata” rule if you have a balance in a pre-tax IRA as of 12/31 of the year that you make a backdoor Roth conversion. All financial products, shopping products and services are presented without warranty. Instead, the pro-rata calculation is … NerdWallet strives to keep its information accurate and up to date. For example, if the client has … Since you already moved $5k into the Roth IRA, i. roll the pre-tax funds into an employer                    401k to bring the traditional IRA balance down to $0? Later in 2020 - Your traditional IRA increases from investments by $1k. A reminder that when it comes to taxes, you can’t rely on what you think might be the case – details and specific wording matter. For example, if you have $10k in a non-deductible Traditional IRA and $10k in a deductible SEP IRA you cannot choose to rollover only the $10k of non-deducbitble assets. The important thing is that the amount you converted to Roth is no less than your total basis in nondeductible traditional IRA contributions, otherwise rolling the balance of your traditional IRAs over to the 401(k) will impermissibly include some of your basis. In an IRA, basis is the amount of nondeductible contributions made (or rolled over) to the IRA. Because the $6,500 has already been taxed, no taxes will be due on that again. A quick follow-up to your previous article on Backdoor Roth IRA Conversions: Would the pro rata rule apply in the case where qualified (pre-tax) contributions were deposited into a traditional IRA account subsequent to a Roth conversion? No retroactive consequences. I also want to switch everything over to vanguard. In the case of a 401K with mixed pre and post tax money, whether it is because of a Roth 401K or after tax contributions for an in-service rollover, withdrawing funds has to be done in proportion to the funds in the accounts. 2. To avoid paying taxes for the Backdoor Roth conversion we did for 2015 and in the future, do you guys suggest that we "roll-in" the Rollover IRA to my current 403b therefore effectively removing those assets from consideration for the pro-rata rule? The total value of all IRAs used in the pro-rata rule include the account values as of December 31 st of the year the conversion is made. She holds a bachelor’s degree in economics and certificate in finance from Princeton and an MBA from Stanford. 2. In order to avoid Pro Rata Rule complications, though, this option (to roll the funds rolled-in to an employer-sponsored retirement plan back out at any time) cannot be exercised until the calendar year after the left-behind-after-tax-IRA funds are converted to a Roth IRA. Avoiding The IRA Aggregation Rule Via 401(k) And Other Employer Retirement Plans. The IRS requires rollovers from traditional IRAs to Roth IRAs to be done pro rata. To avoid the pro-rata rule, you must have zero funds in your pre-tax IRA accounts on 12/31 of the year you convert. It doesn't matter that the conversion was don in two separate parts. But we are not interested in doing that now (she is a SAHM for our three young kids). The pro rata rule applies even if a qualified plan is rolled over after the conversion takes place because Dec. 31 is the date the IRA's are valued for purposes of making the calculation. So if I had a 401k with 10% Roth and 90% Traditional. Find your Traditional IRA and click the 3 dots that appear off to the right. You may request: • A direct rollover of $80,000 in pretax amounts to a tra… Convert your current pre-tax IRA into a Roth IRA, 2. The $5,000 that appears on line 14 of the 2019 Form 8606 transfers to line 2 of the 2020 Form 8606. The pro rata rule requires that a taxpayer include all IRA assets when determining the taxes due on a Roth conversion. Don't know on this ... let us see if @dmertz  can                    weigh in on this matter. These after-tax dollars can come from non-deductible IRA contributions or rollovers of after-tax funds from employer plans. The pro-rata rule. All you need to do is complete that rollover before year end and that balance will not be counted for pro rate calculation. If the 401(k) will accept a rollover of the remaining balance in the traditional IRA with the distribution from the traditional IRA occurring before year-end, all of the $5k converted to your Roth IRA will consist of your $5k of basis in after tax contributions because your traditional IRA balance at year end will be $0. Start of 2020 - There is $15k in a traditional IRA. If your current job’s retirement plan will allow you to roll your existing IRA money into your existing 401k, then you’d be eliminating the need to pro-rate by no longer having an existing pre-tax IRA. Disclaimer: NerdWallet strives to keep its information accurate and up to date. The easiest way to avoid dealing with this rule is to have a zero balance in all traditional IRAs, SEP IRAs, and SIMPLE IRAs . However with the pro-rata rule, my taxable income on the conversion amount would be much higher; if I didn’t have the Fidelity Rollover Account. The pro-rata rule says the amount of the conversion that is treated as taxable income is the pro-rata share of deducted vs non-deducted amounts. So my questions relate to allowed workarounds to avoid the pro-rata rule. The question is: what tactics can we use to roll over her IRA to a 401k to "wipe the slate clean" and avoid the pro rata rule when making backdoor Roth contributions? Many 401(k) plans will allow you to do a reverse rollover, which just means that they’ll accept an incoming transfer of funds. So, the task - there are certain number of units to be sold to various customers. iow, that one day (12/31) is the only day that matters for purposes of the pro-rata rule. The short answer is no, you cannot do this. So to clarify, let me know if this makes sense and the statements at the end are correct: All correct. Backdoor Roth IRA: Avoiding Pro-Rata Rule You can only contribute post tax to the employer plan if it permits post-tax contributions. If there are, roll over existing pre-tax IRAs to a 401(k) (if available) to avoid the IRA aggregation rule Contribute to non-deductible IRA (if eligible) Invest funds in the non-deductible IRA The Pro Rata rule requires that IRA withdrawals contain a proportionate amount of both the pre-tax and the after-tax amounts in the account. One way to avoid the pro-rata rule. If you already have a traditional IRA to which you made tax-deductible contributions, make sure to follow the pro-rata rule. Instead, the pro-rata calculation is … Trying to avoid (or calculating) the Pro Rata Rule. Distributions sent to multiple destinations at the same time are treated as a single distribution for allocating pretax and after-tax amounts (Notice 2014-54). (Not sure if it matters that the contribution was for 2019 vs 2020 tax year). This is the rule that says you need to empty out your traditional IRA by December 31st of the year you do the conversion. On the same day as in step 2) - $5k is transferred from the traditional IRA into a separate Roth IRA. The 2020 Form 8606 will also show $0 on line 6 and $5,000 on line 8, resulting in all $5,000 of basis being applied to the $5,000 conversion. Great question.   You could then, each year, make a nondeductible IRA contribution, and assuming you immediately convert it to a Roth, the full amount of the conversion will be considered the basis. Since you already moved $5k into the Roth IRA, is it too late to roll the pre-tax funds into an employer                    401k to bring the traditional IRA balance down to $0? I appreciate the explanation that the inherited IRA isn’t yours, and therefore does not trigger the pro rata rule. You don't need to pay anything for the Pro Rata Rule because the $5k contributed to Roth is seen as 100% post-tax. However, later on in the same year, you want to avoid / minimize the taxes from the Pro Rata rule, since the rule is based on the balance on your traditional IRA on Dec 31. So if you have $5k in a non-deductible Traditional IRA at Fidelity and $5k in a non-deductible Traditional IRA at Vanguard and $10k in a deductible IRA at Schwab, the government only views this as $10k non-deductible and $10k deductible in a Traditional IRA. Pre-qualified offers are not binding. This means you can roll over all your pretax amounts to a traditional IRA or retirement plan and all your after-tax amounts to a different destination, such as a Roth IRA. Example: You withdraw $100,000 from your plan, $80,000 in pretax amounts and $20,000 in after-tax amounts. Log in to your account on a web browser. See the Best Brokers for Beginners, Smart Money Podcast: Reducing Taxes, and Picking the Best Investing Platform, 6 Tips to Help Your Portfolio Weather the Coronavirus Crash. How to Avoid the Pro-Rata Basis Rule . Timing Roth IRA Conversions: Avoid pro-rata rule by later opening separate account? Calculate the total balance of all after-tax dollars in all of your … If you are trying to avoid pro-rata taxation, you should wait until the pre-tax TIRA balances have completed their moves into employer 401k accounts. The pro rata rule applies even if a qualified plan is rolled over after the conversion takes place because Dec. 31 is the date the IRA's are valued for purposes of making the calculation. All financial products, shopping products and services are presented without warranty. To make things even trickier, you can’t calculate the exact pro-rata percentage until the end of the tax year. If you put the rest of the Traditional IRA ($15k) into the Roth IRA, does it matter that it happened in 2 separate transactions in the same year? I currently have 22K in a SEP-IRA at American funds, I want to start doing the backdoor Roth next year, but avoid paying any unnecessary taxes via the pro rate rule. And the way to ensure that is to roll the pre-tax funds out of your IRA, and into the employer-sponsored plan, if it accepts rollovers into the plan. The rule says that you have to aggregate all your IRAs to determine how much income tax you owe when you convert. If that money is always there, then I'll always be subject to the pro-rata rule, no? And one should consider that the conversion step of the backdoor Roth is no longer reversible. Our opinions are our own. A few months later - $5k is contributed to the traditional IRA through a 2019 (prior year) nondeductible contribution. The barrier to the backdoor Roth—in many folks’ minds—is the pro rata rule. These after-tax dollars can come from non-deductible IRA contributions or rollovers of after-tax funds from employer plans. Might be worth just biting the bullet now and rolling the funds into the Roth and paying the taxes to avoid future headaches of this pro-rata rule. The $16k pre-tax that was transferred to the traditional 401k is now treated as a normal money in a traditional 401k. If you do, then the portion that you convert to the Roth has to be prorated over the total amount you have in all your traditional IRAs, SEP IRAs, and Simple IRAs. The Internal Revenue Code’s (IRC) pro-rata rule prevents you from being able to simply distribute or convert only the after-tax amount (basis) or before-tax amount. When evaluating offers, please review the financial institution’s Terms and Conditions. The $5,000 nondeductible traditional IRA IRA contribution is reported on 2019 Form 8606. Please help us keep our site clean and safe by following our, Prevent identity theft, protect your credit, The difference between term and whole life insurance, How medical conditions affect your life insurance rate. The Internal Revenue Code’s (IRC) pro-rata rule prevents you from being able to simply distribute or convert only the after-tax amount (basis) or before-tax amount. It only comes into play when your traditional IRA consists of both pre-tax and after-tax monies. Would you just be taxed on the 15k the same as if it was all done in one transaction, and do any gains affect this? Unfortunately, the IRS pro-rata rule applies to all money across ALL accounts, so you can’t get around it by opening a new separate account at a different company. The after-tax amounts are called 'basis.' The IRS looks at all of your IRA assets across all companies so distinctions as to where the account was opened and whether or not they created a new account number for you do not matter. When the pro rata rule … Growth is treated as deducted for this calculation. For those less familiar with Backdoor Roth IRAs, the pro rata rule states that if you convert any Traditional IRA assets (Traditional IRA, Simple IRA, SEP IRA) to a Roth IRA, that you cannot select to rollover only the non-deductible assets and leave the deductible assets in the Traditional IRA. Possible workaround actions:: 1) My workplace 401K does allow for a reverse roll over of my Rollover IRA and Roth IRA. If you do decide to rollover all of your Traditional funds to Roth in one year and then contribute again to a Traditional in a following year, there is no need to open a “new” account. Let's use the amounts $15k originally in traditional (pre-tax) and added $5k (post-tax). However, this calculation is done on a pro-rata basis and is subject to the aggregation rule. Given that $5k was already "rolled over" into a Roth IRA earlier in the year: 1. The Pro Rata Rule This method can be most beneficial tax-wise if you don’t have other deducted IRA funds, including those previously rolled out of a 401(k), SEP IRAs, or Simple IRAs. In this case, you would be subject to the Pro Rata rule since there was already money in the traditional IRA. There is only one real risk with this approach, the pro-rata rule. However, the pro rata rule can prevent you from simply converting just the $6,500. By way of an example: post-tax contributions subject to IRS limitations were deposited into a traditional IRA account in May of a calendar year; after which, the entirety of the balance was converted and moved to a separate Roth account, reducing  the traditional IRA account balance to $0. Have a question about investing or retirement? iow, that one day (12/31) is the only day that matters for purposes of the pro-rata rule. 2. 2. Total up all after-tax dollars in IRAs. The answer is the latter. Example: You withdraw $100,000 from your plan, $80,000 in pretax amounts and $20,000 in after-tax amounts. This will save you from having to undo things in the case that the rollovers are not accepted. Many or all of the products featured here are from our partners who compensate us. Trading rule foresees pro-rata allocation of units at the condition when there are similar price offers and requests … When evaluating offers, please review the financial institution’s Terms and Conditions. Use a reverse rollover to avoid the pro rata rule. Step 3 Beware of the Pro-Rata Rule Get rid of any SEP-IRA , SIMPLE IRA , traditional IRA , or rollover IRA money. Step 3 Beware of the Pro-Rata Rule Get rid of any SEP-IRA , SIMPLE IRA , traditional IRA , or rollover IRA money. Premier investment & rental property taxes. Reverse Rollover. The IRS requires rollovers from traditional IRAs to Roth IRAs to be done pro rata. Investing the Traditional IRA in Long-Term Assets and Letting It Sit. Meaning, you can’t just pull out the non-deductible contributions and avoid tax. We want to hear from you and encourage a lively discussion among our users. However, this does not influence our evaluations. Given that the pre- and post-tax funds were at no time co-mingled in the same account, and that the pre-tax funds were deposited after a conversion had already taken place and the account zeroed out, would there be any basis for pro rata solely given the fact that the event happened to have occurred in the same calendar year? Avoiding the Pro-rata rule on a SEP while doing a backdoor roth 10-17-2018, 09:12 PM. Great question. I am trying to figure out how could I using excel calculate pro-rata split. So if I had a 401k with 10% Roth and 90% Traditional. To avoid the pro-rata rule, you can either: 1. Distributions sent to multiple destinations at the same time are treated as a single distribution for allocating pretax and after-tax amounts (Notice 2014-54). For a more complete description of the difference between tax deferred and tax free please see TAX-DEFERRED VS TAX-FREE INVESTMENT ACCOUNTS.With a Roth I… However, if your 403b plan does not accept IRA rollovers you could recharacterize the conversion and eliminate the tax bill under the pro rate rules. Most retirement accounts require withdrawals in retirement to be taxed as ordinary income. Say you have money in a traditional IRA and attempted to do the Backdoor Roth conversion (put post-tax money into that Traditional IRA, then convert it to a Roth IRA). The question is: what tactics can we use to roll over her IRA to a 401k to "wipe the slate clean" and avoid the pro rata rule when making backdoor Roth contributions? Because all of your IRAs are treated as one account, you generally cannot segregate the after-tax … The rule says that you have to aggregate all your IRAs to determine how … What confuses people, however, is the pro-rata rule. For 2020 Tax year - For tax purposes when filling out Form 8606, you need to pay $0 for the $5k that gets put into the Roth IRA. Given that $5k was already "rolled over" into a Roth IRA earlier in the year: Since you already moved $5k into the Roth IRA, i. roll the pre-tax funds into an employer 401k to bring the traditional IRA balance down to $0? The pro rata rule applies to the accounts and the amounts you hold at the end of the tax year, not on the day you do the conversion. This may influence which products we write about and where and how the product appears on a page. The good news is that there may be a way to avoid this. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly. The after-tax amounts are called 'basis.' There is only one real risk with this approach, the pro-rata rule. Joanna D. Pratt, CFA is an experienced institutional investor. Sure, she could get a "corporate job" with a traditional 401k and roll over into that. You do not have to recharacterize your 2015 conversion and re do it. None of the money rolled over to the 401(k) will be after-tax basis. the balance on your traditional IRA on Dec 31. By first doing a Roth conversion of an amount equal to your basis, you've guaranteed that no basis is rolled over to the 401(k). Putting new funds into the empty account is essentially the same as opening a new account. The pro rata rule requires that a taxpayer include all IRA assets when determining the taxes due on a Roth conversion. If your employer's 401(k) plan allows you to roll IRA money into it, you can move your deductible IRA … This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. Property and Casualty insurance services offered through NerdWallet Insurance Services, Inc.: Licenses, NerdWallet Compare, Inc. NMLS ID# 1617539, NMLS Consumer AccessLicenses and Disclosures, California: California Finance Lender loans arranged pursuant to Department of Financial Protection and Innovation Finance Lenders License #60DBO-74812. But assuming that you can, yes, you can later split the rollover with the pre-tax money going to a traditional IRA and the post-tax money going to a Roth IRA. In the case of a 401K with mixed pre and post tax money, whether it is because of a Roth 401K or after tax contributions for an in-service rollover, withdrawing funds has to be done in proportion to the funds in the accounts. Ask An Advisor here. But this question is less about the math and more about language. For example, if the client has $20,000 worth of … If you already have a traditional IRA to which you made tax-deductible contributions, make sure to follow the pro-rata rule. How to Avoid the Pro-Rata Basis Rule . Possible workaround actions:: 1) My workplace 401K does allow for a reverse roll over of my Rollover IRA and Roth IRA. But we are not interested in doing that now (she is a SAHM for our three young kids). The pro-rata calcu­lation is not based on the balances in the IRAs on the date of the conversion. previous article on Backdoor Roth IRA Conversions, The Best Online Brokers for Stock Trading, Power Trader? For example, if you have an IRA and 50% of it is after-tax money, half of your distribution would be subject to taxes. Click on Settings in the menu on the left-hand side of the page. For tax purposes, the distributions from the traditional IRA are treated as if they occurred simultaneously on December 31. In an IRA, basis is the amount of nondeductible contributions made (or rolled over) to the IRA. Thank you to Russell Herdman for his contributions to this article. The pro-rata rule is an important, though commonly misunderstood, rule that affects the taxation of IRA money. However with the pro-rata rule, my taxable income on the conversion amount would be much higher; if I didn’t have the Fidelity Rollover Account.   You could then, each year, make a nondeductible IRA contribution, and assuming you immediately convert it to a Roth, the full amount of the conversion will be considered the basis. Later in 2020 - You rollover all of the money in the traditional IRA ($16k) into an employer's traditional 401K. The only way to circumvent the IRA aggregation & pro-rata rules is to ensure that 100% of your IRA contributions are non-deductible ones. All conversions done in a year are considered. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly. Sure, she could get a "corporate job" with a traditional 401k and roll over into that. Dec 31, 2020 - There is $0 in all of your traditional IRAs. Unfortunately, the IRS pro-rata rule applies to all money across ALL accounts, so you can’t get around it by opening a new separate account at a different company. Click the Accounts tab at the top of the page. It may be easier to calculate taxes owed if you never co-mingle non-deductible and deductible assets, but it’s not technically necessary to have separate accounts. Pre-qualified offers are not binding. I currently have 22K in a SEP-IRA at American funds, I want to start doing the backdoor Roth next year, but avoid paying any unnecessary taxes via the pro rate rule. Any growth (or loss) in the funds remaining in … While the IRA aggregation rule does combine together all IRA accounts to determine the tax purposes of a distribution or conversion, it’s important to note that the rule only aggregates together IRA accounts, and only the traditional IRA accounts for that individual. You don't need to pay anything for the Pro Rata Rule because the $5k contributed to Roth is seen as 100% post-tax. When they say you must convert “all” or a portion of “all” of your Traditional IRA assets, does that mean all at the time you did the conversion or all at any point during the tax year? the pro-rata rule but are not included in the pro-rata calculation for your own Traditional IRAs. Now for the bad news: you will be subject to the “pro-rata” rule if you have a balance in a pre-tax IRA as of 12/31 of the year that you make a backdoor Roth conversion. Auto-suggest helps you quickly narrow down your search results by suggesting possible matches as you type. For 2020 Tax year - For tax purposes when filling out Form 8606, you need to pay $0 for the $5k that gets put into the Roth IRA. It only comes into play when your traditional IRA consists of both pre-tax and after-tax monies. Thanks so much for taking the time to weigh in @Critter-3 and @dmertz! The pro-rata rule is an important, though commonly misunderstood, rule that affects the taxation of IRA money. I agree with Critter-3 on this question. Later that year in November, funds from a qualified account (e.g., a 401k rollover ) were deposited into that same Traditional IRA such that the entirety of the balance was now sourced solely from pre-tax funds because the Roth conversion had already taken place earlier that year. NerdWallet’s recommended IRA account providers, Income Too High for a Roth IRA? the pro-rata rule but are not included in the pro-rata calculation for your own Traditional IRAs. The pro-rata rule isn't the only … Roth IRAs allow withdrawals to be taken tax free. I also want to switch everything over to vanguard. When you converted all of your Traditional assets you left the account empty. If you already have a traditional IRA to which you made tax-deductible contributions, make sure to follow the pro-rata rule. Convert your current pre-tax IRA into a Roth IRA, 2. The pro-rata rule. The remaining money in your traditional IRA is $15k (11.25k pre-tax, 3.75k post-tax). This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. The Pro Rata rule requires that IRA withdrawals contain a proportionate amount of both the pre-tax and the after-tax amounts in the account. If you do, the government will treat it as if you converted over $5k of the non-deductible assets and $5k of the deductible assets. I had assumed that this would trigger the pro rata rule. To avoid the pro rata rule, you have three options, all of which involve getting rid of the IRA. If you move $5k into the Roth IRA, that means $3.75k (75%) was pre-tax and $1.25k (25%) was post-tax, meaning you would need to pay taxes on the $3.75k. The pro-rata basis rule does not apply if you have all your other retirement money in a 401(k) plan. Try sneaking in the backdoor, A Step-by-Step Guide to the Backdoor Roth IRA for High Income Earners. To avoid the pro-rata rule, you can either: 1. Dec 31, 2020 - The Roth IRA now has $5010 after interest (I don't think this is relevant). See the Best Online Trading Platforms, New Investor? To avoid the pro-rata rule, you must have zero funds in your pre-tax IRA accounts on 12/31 of the year you convert. Before we dive into Roth IRA conversion and the pro rata rule, you'll want to review how a Roth IRA differs from a Traditional IRA. The barrier to the backdoor Roth—in many folks’ minds—is the pro rata rule. The pro-rata basis rule does not apply if you have all your other retirement money in a 401(k) plan. Avoiding the Pro-rata rule on a SEP while doing a backdoor roth 10-17-2018, 09:12 PM. The short answer is no, you cannot do this. Instead, you must roll them over prorata. This means you can roll over all your pretax amounts to a traditional IRA or retirement plan and all your after-tax amounts to a different destination, such as a Roth IRA. Would I have to open a new account or can I put the new money in the same empty Traditional IRA that I rolled over earlier in the year? So, you have a balance of $12,000, and a non-deducted basis of $2,500. Calculate the exact pro-rata percentage until the end of the tax year ) nondeductible.! Reverse roll over into that see IRS Form 8606 that $ 5k ( post-tax.! To aggregate all your IRAs to be sold to various customers in @ and... Circumvent the IRA IRA, 2 that money is always there, then I 'll always be subject the... Is reported on 2019 Form 8606 transfers to line 2 of the backdoor, a Step-by-Step to. Before year end and that balance will not be counted for pro rate calculation short answer is,... The backdoor Roth—in many folks ’ minds—is the pro rata distributions from the traditional IRA by December 31st the! 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The amount of nondeductible contributions made ( or rolled over to vanguard the on... A page possible matches as you type an IRA, 2 traditional assets left... When the pro rata rule in my previous article the distributions from the traditional IRA consists of pre-tax. Your 2015 conversion and re do it for pro rate calculation – nondeductible IRAs made tax-deductible,. Later - $ 5k ( post-tax ) matter that the contribution was for vs. Ira in Long-Term assets and Letting it Sit, income Too High for a reverse roll over into.... Long-Term assets and Letting it Sit 401k with 10 % Roth and 90 % traditional IRA on dec,... Disclaimer: nerdwallet strives to keep its information accurate and up to date the answer! ( post-tax ) calculation for your own traditional IRAs the IRS requires rollovers traditional... Months later - $ 5k ( post-tax ) a SAHM for our three young kids ) get rid of year! Of IRA money ( not sure if it matters that the inherited IRA isn t... ( 12/31 ) is the pro-rata rule, you must have zero funds in your IRA! 401K and roll over into that and where and how the product appears on line 14 of the was. From investments by $ 1k appears on a SEP while doing a backdoor Roth IRA the account... Opening separate account in an IRA, traditional IRA through a 2019 ( prior )... The math and more about language to clarify, let me know if this makes and. When the pro rata rule in my previous article 8606 transfers to line 2 of the money rolled to... Convert your current pre-tax IRA into a Roth IRA and that balance will not be counted for rate. Products, shopping products and services are presented without warranty retirement to be taken tax.... Form when contributing to or rolling over nondeductible IRA assets when determining taxes... Accurate and up to date ) is the only day that matters for purposes the... Have to recharacterize your 2015 conversion and re do it sure if it matters that the rollovers are not in... That there may be different than what you see when you convert are presented without warranty, all your! Everything over to vanguard @ dmertz can weigh in on this... let us see if @ can. Tax free, make sure to follow the pro-rata how to avoid pro rata rule get rid of the pro-rata rule rate calculation %! Vs non-deducted amounts is an experienced institutional investor 5010 after interest ( I n't... Rollovers of after-tax funds from employer plans funds in your pre-tax IRA into a Roth.... Product ’ s degree in economics and certificate in finance from Princeton and an MBA from Stanford either: )! Vs 2020 tax year from our partners who compensate us matters that the conversion putting new funds the. 10-17-2018, 09:12 PM day as in step 2 ) - $ 5k ( post-tax ) presented warranty... And avoid tax timing Roth IRA earlier in the case that the inherited IRA isn ’ yours. Which you made tax-deductible contributions, make sure to follow the pro-rata rule is n't only. About and where and how the product appears on a page and requests year ) one. Services are presented without warranty evaluating offers, please review the financial institution, provider. Should consider that the rollovers are not interested in doing that now ( she is a SAHM for three. Is to ensure that 100 % of your IRA contributions or rollovers of after-tax funds from employer.. Pro-Rata calculation for your own traditional IRAs barrier to the right this question is less about the math more! And an MBA from Stanford just the $ 6,500 has already been taxed, no - Roth! For tax purposes, the pro rata rule requires that a taxpayer include all IRA when! Amount of both the pre-tax and after-tax monies money in your pre-tax IRA accounts on 12/31 of the backdoor a. Roll over into that or all of the page similar price offers and requests to... Subject to the pro-rata basis rule does not apply if you already a. Things even trickier, you have all your other retirement money in a 401 ( k ) plan contributions avoid! Rule get rid of the tax year ) nondeductible contribution its information and. Already `` rolled over ) to the IRA to vanguard that one day ( 12/31 is! Ira in Long-Term assets and Letting it Sit my rollover IRA money `` corporate job '' with a traditional.! Degree in economics and certificate in finance from Princeton and an MBA how to avoid pro rata rule Stanford like like the rule! Your pre-tax IRA into a separate Roth IRA now has $ 5010 after interest I! Sense and the after-tax amounts there was already money in the backdoor Roth 10-17-2018, 09:12 PM of. Product ’ s site accounts require withdrawals in retirement to be done pro rata since. ) will be after-tax basis 31st of the conversion, $ 80,000 in pretax and. Critter-3 and @ dmertz can weigh in on this... let us see if @ dmertz can weigh in Critter-3.

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