hard · Certified Financial Planner Tax Planning
The Ortegas are concerned that Ricardo's large 401(k) balance will increase the taxes on Elena's proposed Roth conversion. Ricardo's 401(k) is valued at $500,000, and he has no IRAs.
How does Ricardo's account balance affect Elena's pro-rata calculation?
- It requires the planner to aggregate all 'qualified' assets, including the 401(k), into one calculation.
- It has no impact because the aggregation rule applies to each individual's IRAs separately.
- It decreases the taxable portion by increasing the total retirement 'pool' of the household.
- It increases the taxable portion because the Ortegas file a joint tax return.
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