Hello,
I have both a traditional ira and a roth ira. The traditional ira is simply a transfer medium to put money in and the money then immediately go thru ira back door conversion to the roth ira, leaving the balance in the traditional ira to be $0 always. I this is all fine and nice and no complication here. I enjoy the tax free money that were deposit in my ira going forward.
Now with my wife, that is a whole different story. I just now learn about "pro-rata" after we deposited 7k into one of her traditional ira and went through back door conversion to get the 7k into her roth ira. We were thinking that the entire 7k, just like mine, would be consider as none-deductible money. But after talking to some folks look like that is not true because of pro-rata. So how do I calculate pro-rata?
Let say my wife has 3 ira (including the one that we just converted to roth and has 7k) with a total of 107k. Here is how I calcluated pro-rata: 7k/107k = 6.5%. 6.5% X 7000 = 420. So $420 would be consider tax free dollars and $6580 would be consider taxable dollars. That means of the 7k we converted from her traditional ira to her roth ira, we need to pay tax on $6580. Some one please chime and let me know if my calculation is correct.
