Do You Know When the Pro-Rata Rule Applies?

By Sarah Brenner, JD, IRA Analyst


In 2012, I did a direct rollover of a client’s 401k plan, which included before-and-after-tax funds, into a single IRA. The plan administrator would not allow us to split the funds.

I executed a direct IRA to IRA transfer of only the after-tax amount to another provider to keep those funds segregated from the before-tax funds.

In 2015 after Notice 2014-54 came out, I requested that only the initial after-tax funds, and no earnings on those funds, be internally transferred from the IRA to a newly established Roth IRA at the same provider.

Would this be considered a non-taxable conversion of after-tax 401k funds using Notice 2014-54, or do the funds have to come directly from a 401k and not an IRA?

Answer: ...

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