Pro Rata Rule for Married Joint Filers
Melissa and Mark are married and file jointly. Melissa has $100K in 3 IRAs, including $48K in basis. Mark has $800K in IRAs, including $50K in basis. Melissa wants to convert all $100K of her IRA to a Roth IRA to provide tax free $ for her grandchildren’s eventual college costs. Does Mark’s IRA value have to be included in the pro rata calculation if only Melissa’s IRA’s are converted to Roths?
Permalink Submitted by Alan Spross on Thu, 2010-06-10 17:32
No.
A separate Form 8606 applies to each spouse and the 8606 only holds one SSN.
Everything else being equal, the spouse with the highest % of basis should be the first to convert, so the plan here is sound since she has 48% basis and he only has 6.25%. That will get more dollars into the Roth per tax dollar paid.
While it might inflate their tax bracket, they also have the option of electing a two year deferral for one spouse’s conversions in 2010 while the other spouse opts out and reports their conversion in 2010. They would then be applying their marginal tax rate in each year of the 3 year period.