pro-rata rule problem

Submitted by Edward Drinkmann on Mon, 2020-03-09 05:44

Good day

Well I made a mistake. My wife and I both made a contribution to a post tax IRA. We then converted those $5000 post tax IRA’s to a Roth (attempting a back door IRA). However 2 years prior I transferred my pre-taxed 403B to a pre-taxed IRA which is worth $90,000 now. So our $10,000 post tax IRA conversion to a Roth is considered 90% taxable under the pro-rata rule. However is there a way to have the $9,000 post- taxed funds that were taxed assigned to the tax deferred IRA as post tax. EX. now the remaining IRA funds are $81,000 taxable and $9000 post tax. If not I would be paying twice on the $9,000 of the $10,000 post tax IRA that was taxed due to the pro-rata rule.



Submitted by David Mertz on Mon, 2020-03-09 12:54

  • First, IRAs are individual accounts; there is no such thing as “our” IRA.  The pro rata calculation of the taxable and nontaxable amounts of any of an individual’s distributions is done for each individual separately.  The $90,000 in your IRA funded by the rollover has no bearing on the calculation of the taxable amount of your wife’s Roth conversion.
  • Second, there are no separate pre-tax and post-tax IRAs.  For the purpose of the pro rata calculation, all of an individual’s traditional IRAs are treated in aggregate as if they are a single, combined IRA.  The calculation is the same no matter which of the individual’s IRAs the distribution comes from.
  • The result in your example is that 5/(5+90) = 5.26% or $263 of *your* conversion is nontaxable, $4,737 is taxable and $4,737 of your basis in nondeductible traditional IRA contributions remains in your own traditional IRA(s).  That basis will be applied to traditional IRA distributions that you yourself make in the future until you have no more money in your traditional IRAs and all of the basis has been applied.  If your wife has no other money in traditional IRAs at the end of the year, all $5,000 of *your wife’s* conversion is nontaxable and she has no remaining basis.

Submitted by Edward Drinkmann on Tue, 2020-03-10 04:56

thank you for your detailed reply

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