Pro-Rata question
I made a deductible contribution to my empty IRA and promptly rolled into my Roth IRA in Jan 2016. In July 2016 I closed my office defined contribution plan and rolled the monies into the now empty IRA. Would this be considered a mix of deductible and non-deductible monies and the Pro-Rata Rules would apply?
Permalink Submitted by Alan - IRA critic on Tue, 2016-09-06 22:49
There is no basis to pro rate unless you have basis in your IRA. Your contribution was deducted, so there is no basis there. If your DC plan contained after tax contributions that were rolled into the TIRA, then you have some basis which would make your conversion partially non taxable per Form 8606. Otherwise, if all your TIRA funds are pre tax, then the conversion is 100% taxable. OR – did you mean your regular IRA contribution was NOT deducted?
Permalink Submitted by Joseph Salkowitz on Wed, 2016-09-07 03:19
I mistakenly wrote the contribution was deductible when it was a voluntary non-deductible contribution from monies that I paid taxes. All the monies in my DC plan were all pre-tax. The question is whether the monies in the IRA are considered co-mingled even though the non-deductible and deductible monies were not in the account at the same time?
Permalink Submitted by Alan - IRA critic on Wed, 2016-09-07 03:44
Yes, the rollover money counts and triggers the pro rate rule because Form 8606 math is based on the year end value of your IRAs, adjusted for distributions including conversions. Doing these employer plan rollovers in the same year as a “back door Roth” contribution and conversion is a frequent error that causes the conversion to be mostly taxable.