Exception to the IRA Pro-Rata-Rule

Solo 401k

Usually, when you take an IRA distribution, all of your IRAs are considered one big IRA
 ( except Roth IRAs).
You may rollover just your taxable IRA funds to your solo-k plan as the solo-k plan allows for it.

You can only fund each of these distribution with the taxable part of your IRA. The pro-rata rule will not apply. Instead, the distribution will consist only of taxable IRA funds.

Example:
Sam has $250,000 in his only IRA. His IRA includes $150,000 in after-tax funds. Sam’s solo-k plan allows rollovers from IRAs. Sam rolls over $100,000 to his solo-k plan. The pro-rata formula does not apply. Instead, the entire $100,000 amount will be pre tax. This means that the $150,000 left in Sam’s IRA is considered to be after-tax funds. Sam will not have a tax bill when he takes any of these funds from his IRA.

Solo 401k Plan: Your Opportunity for Checkbook Control of Your Future