Pro Rata Rule
I have a simple question that I can’t find the answer to seemingly anywhere. If a client has a $1M IRA are they eligible to participate in their qualified plan’s Mega Backdoor Roth at their company? Doesn’t the Pro Rata rule apply separately to qualified plans and personal IRA’s and Roth’s or is an IRA anywhere disqualifying for a mega backdoor Roth? Thanks in advance to those who know the answer to this.
Permalink Submitted by Alan - IRA critic on Fri, 2024-11-22 12:06
Yes, separately.
The existence or amount of a client’s IRAs or Roth IRAs have no effect on the mega back door Roth process, eligibility, or taxes. The only pro rating is within the after tax sub account where any gains in that sub account are prorated with the AT contributions amount when rolled into the Roth 401k or out to a Roth IRA.
On the other hand, for a basic back door Roth process (not involving a non IRA plan), any TIRA, SEP or SIMPLE IRA balance will make conversions mostly taxable.