Need to Know: Roth Conversions and Pro-Rata Rule | Ed Slott and Company, LLC

Need to Know: Roth Conversions and Pro-Rata Rule

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

One of the main things to consider when thinking about making a Roth conversion is the pro-rata rule. When an IRA contains both non-deductible and deductible funds then each dollar withdrawn from the IRA will contain a percentage of tax-free and taxable funds. All IRAs will be considered in this calculation, including SEP and SIMPLE IRAs.


This is an important rule that all financial advisors should consider when discussing the pros and cons of Roth conversions with their clients.

 

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