Pro-rata rule
Certified Financial Planner glossary · Certified Financial Planner
Definition
The requirement that all traditional, SEP, and SIMPLE IRAs be aggregated in determining the taxable portion of a distribution or conversion.
Pro-rata rule in plain English
Someone rolls only the after-tax dollars out of one IRA and leaves pre-tax balances elsewhere, expecting a clean nontaxable conversion. The pro-rata rule requires that all traditional, SEP, and SIMPLE IRAs be aggregated when determining the taxable portion of a distribution or conversion. Put simply: every traditional, SEP, and SIMPLE IRA counts in the fraction. SEP and SIMPLE balances are not a free pass around aggregation, and labeling one account after-tax does not wall it off from the pool.
Related Certified Financial Planner terms
Certified Financial Planner practice questions · Certified Financial Planner flashcards · Certified Financial Planner study guide