Summer Conley Offers Insights On IRS’ Pro-Rata Rule for Retirement Accounts With PLANSPONSOR

In the PLANSPONSOR article, “What Pro Rata Rules Mean When Taking Plan Distributions,” benefits and executive compensation group leader and partner Summer Conley explained how the Internal Revenue Services requires certain distributions from retirement accounts to be done on a pro rata basis, meaning in proportion to the way in which account contributions were saved. 

The IRS enforces pro rata rules for post-tax funds in pre-tax sources. For example, defined contribution retirement plans can require participants to withdraw from their pre-tax assets first, before taking from their Roth assets. Conley said that requirements like these are addressed in plan documents. 

Conley advised participants to wait before taking Roth distributions. 

“The longer you leave the Roth in there the more interest it earns,” Conley explained. 

Further, Conley encouraged participants to fully read and understand their plan documents so they can be sure if they are required to withdraw from pre-tax assets first.