Roth IRA Pro-Rata Rule
Hi,
I have a new client who has been doing back-door Roth strategies with his old advisor for him and his wife. Upon review of the account statements they provided, I realized the wife had an existing IRA balance ($35000) from an old IRA. The old advisor opened a separate zero-balanced IRA to complete the Roth-Two Step. However, based on the Roth IRA pro-rata rule, ALL of the IRA should be considered as the same account. I don’t want to deliver this bad news just yet, so wanted to reach out here and see, is there a way we can correct this? Thank you!
Permalink Submitted by Alan - IRA critic on Tue, 2022-06-28 17:56
If prior year Forms 8606 for wife is incorrect because her total IRA balance ignored the other IRA and full info was not provided to the tax preparer, those returns must be amended starting with the first year for such error, and her conversions will be mostly taxable. Completed conversions cannot be recharacterized. For 2022, if wife is able to roll her pre tax IRA balance into an accepting employer plan by the end of 2022 a non taxable back door Roth could be done for 2022. Years prior to 2019 are closed tax years, so if these errors started in closed years, the situation becomes more complicated.