The Pro-Rata Rule For Backdoor Roths IRAs

Many beginners in the investing world doesn’t know this but the IRS requires rollovers from traditional IRAs to Roth IRAs to be done in the pro rata way.

The way it works is through the point when the determining your tax bill on a conversion from a traditional IRA to a Roth IRA. The IRS here is going to look at the way your traditional IRA accounts  are combined.

If or when all of your traditional IRAs accounts are combined consist of something like 80% pre-tax money and 40% after-tax money. Then that ratio determines what percentage of the money which you can convert to a Roth IRA is going to be taxable.

Its important to keep in mind about this topic that IRS applies the pro-rata rule to your total IRA balance at year-end. 

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