Backdoor self directed Roth IRA

[Victoria Creighton]

I recently moved a pension from a previous employer to a traditional self-directed IRA. I now plan to convert this traditional IRA to a Roth IRA to take advantage of getting myself a tax shelter I wouldn't normally qualify to obtain. I know I will have to pay incomes taxes as apart of this conversion, but I've been doing some reading and can't seem to understand if I will also be hit with additional taxes as a result of something called "pro-rata rule". Can anyone dumb this down for me? A little more info on my profile: I have no other IRA's but I do have a 401k with my existing employer.

[Mark Nolan]

@Victoria Creighton

Pro-rata rules apply to non-deductible IRAs-an IRA where you make annual non-deductible contributions.

So as long as you don't have any non-deductible IRA contributions, Roth IRA conversions are neither subject to the pro-rata rule or the 10% early distribution penalty at time of conversion.