Multiple IRAs and Pro Rata Rule

[ccea]

Hi.  I'm seeing very conflicting information online about the legality of setting up multiple IRAs with pre-tax and after-tax dollars in them to avoid the pro-rata rule.  Doesn't the rule require that all IRAs, even if they are in different accounts and possibly with different providers, be included in the pro-rata calculation for determining taxability of backdoor Roth conversions?  A financial advisor (CFP) is recommending that having pre-tax and after-tax IRAs (separate accounts) allows one to ONLY convert the after-tax amounts without having to do a pro-rata calculation

[DanaB27]

Yes, in the eyes of the IRA all traditional/SEP/SIMPLE IRAs are one account. Therefore, the pro-rata rule would still apply.

Line 6 Form 8606 instructions state: "Enter the total value of all your traditional, traditional SEP, and traditional SIMPLE IRAs as of December 31, 2024, plus any outstanding rollovers."

The Backdoor Roth only works if your traditional/SEP/SIMPLE IRAs don't have any pre-tax funds. If you plan to use this strategy in the future you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.

[fanfare]

You should refer your CPA to Line 6 of Form 8606.

Do not rely on haphazard misinformation on the Internet.

[dmertz]

As you surmised, the CFP is wrong.