pro rata rules for taxability of Roth IRA conversions
I have a client who over the years co-mingled pre-tax and after-tax contributions into his IRA. What is the correct formula for determining the % attributable to his pre-tax and after-tax contributions. Does this formula change if he already exercised a partial conversion in 2010?
Thanks
Permalink Submitted by Alan - IRA critic on Tue, 2015-02-17 22:07
The formula is calculated on Form 8606. The adjusted year end % of basis in his IRA includes distributions taken during the year and would be the same as applied to his 2010 conversion ONLY if there has been no change in value or new contributions made to any of his IRAs since the 2010 conversion. Tax software will calculate the taxable amount, and it makes no difference which of his IRA accounts is used to fund the next conversion. Of course, this means that all prior 8606 forms have been filed reporting the non deductible TIRA contributions and after tax rollovers from qualified plans so that is basis is up to date on the latest 8606.