Prorata Rule Calculation
Assume a couple is married filing joint tax return.
Does the prorata rule apply only to the IRA’s owned by the individual or does it apply to the couples combined IRA’s?
The reason I am asking is about the Back Door Roth IRA Conversions. We see clients a lot that make too much income to make contributions directly into a Roth IRA but only one spouse has an IRA with a balance. If we open an IRA for the spouse without an IRA and make a non deductible contribution to the IRA and then convert to a Roth IRA, does the prorata rule not apply in this case because the spouse (originally without IRA) does not have any balance for the prorata rule to apply?
Permalink Submitted by Alan Spross on Wed, 2012-10-10 19:27
That is correct. The pro rate rule applies separately to each person’s owned IRAs. A spouse’s IRA is not included. Neither is an inherited IRA, which would have it’s own separate pro rate rules from owned IRA accounts.
The calculations are done on Form 8606, and each spouse would have their own 8606 if one was needed. An 8606 only has room for one SSN.
Therefore, a TIRA could be opened for a non working spouse and a spousal contribution made. Form 8606 would be completed for that spouse showing that spouse’s SSN. The contribution is reported on the 8606 as non deductible and that 8606 in a different section is also used to report the non taxable Roth conversion.