Roth Conversion Prorata Rule
When is the percent of after-tax dollars determined on a Roth conversion? Is it at the time of the conversion or year end?
When is the percent of after-tax dollars determined on a Roth conversion? Is it at the time of the conversion or year end?
Permalink Submitted by Edward Czapor on Wed, 2010-12-08 15:31
It is the year end value for year of conversion with the converted amount and any other distributions added back. The TIRA basis is also increased by any nondeductible contributions that are made between Jan. 1 and April 15 of the following year for the year of conversion. This is all worked out and calculated on Form 8606.
Permalink Submitted by Alan Spross on Wed, 2010-12-08 21:13
That is generally true, but does not apply to transfers of pre tax dollars from the IRA to a qualified plan. Those amounts are not reflected in the 8606 calculation, ie are not added back to get to the year end IRA balance. Some people are doing these transfers of pre tax dollars to a qualified plan that will accept them in order to convert the basis left behind in the IRA tax free.