Pro-rata rule for mid-year rollover
We have a client who rolled his retirement plan assets over to a traditional IRA in March. This rollover contained $11k in post-tax contributions. The IRA already had assets in it, the rollover contained a large portion of pre-tax dollars, and he has since combined another IRA into the account. He takes monthly distributions from the IRA. My question is, how do I perform the pro-rata calculation mid-year? It is my understanding this would be done with a 12/31 value of all IRAs, and since the funds were moved mid year, how do I track what percentage of the distributions for 2021 were post-tax dollars?
Thank you in advance for any guidance.
Permalink Submitted by David Mertz on Wed, 2021-11-10 22:05
How do you perform the pro-rata calculation mid-year? You can’t, at least not with any significant precision. Mid-year you can only guess based on estimated subsequent distributions during the year and an estimated year-end balance in traditional IRAs. The true calculation can only be done after year end when the amount of distributions during the year and the year-end traditional IRA balance are actually known.