pro rata calculation for Roth Conversion

Submitted by Howard Hook on Tue, 2013-01-22 20:52

Client of mine has one IRA ($50k) with 50% of it in after tax money and a 401k ($900k) with all pretax money in it.

I’d like to do a Roth Conversion for the IRA and then later in the same tax year roll over the 401k into a Traditional IRA.

Will this penalize me when calculating the taxable portion of the Roth Conversion or am I okay since the rollover of the 401k happened after the Roth Conversion?

Thanks to the group as always

Howard



Submitted by Alan - IRA critic on Tue, 2013-01-22 22:51

Yes, the rollover would penaltize him. The 401k rollover would be included in the 2013 year end IRA balance and would therefore cause a 50k conversion to be over 97% taxable instead of 50% under the Form 8606 calculation. The solution is to delay the 401k rollover until a year from now and it will not be in the 12/31/2013 IRA balance. If the IRA conversion had been done a month ago it would have been 50% taxable and the rollover could be done now.

Submitted by Howard Hook on Wed, 2013-01-23 00:12

Thanks Alan as always Howard

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