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Financial Planning / Tax Strategies


Subject:  Re: Pro Rata Rule Date:  4/20/2014  1:00 AM
Author:  aj485 Number:  120811 of 133018

Based on the article below, it seems that if I roll my 401K (very large) from my former employer into an IRA, I can then no longer take advantage of the “back door ROTH IRA contribution” because I’ll have too much in an IRA and can no longer roll the $6500 ($12000 married) tax free into a Roth.
Is that a correct reading of the pro-rata rule?

Yes, the taxability of any Roth conversion is pro-rated based on all of the percent of pre-tax money in all non-Roth IRAs that you, as an individual, own. 401(k) accounts are not included in the calculations. If you wish to continue to take advantage of doing back-door Roth contributions because your MAGI is over the limit to contribute to a Roth IRA, you can (1) leave the 401(k) in your former employer's plan, (2) roll it into a 401(k) at your current employer, or (3) convert the money in the 401(k) to a Roth IRA. IRS Pub 590 also has more details.

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