Partial nondeductable IRA to a Converted Roth IRA in 2010
I have an IRA with $140k in pretax dollars and $40k in after tax dollars. Thinking about doing a partial conversion only in 2010. Can I convert only the after tax portion of $40k and not pay any tax or do I have to use a pro-rata formula.
Permalink Submitted by Alan Spross on Mon, 2009-02-02 21:50
You must use the pro rata formula as explained in the instructions for Form 8606. It also applies to all of your TIRA, SEP and SIMPLE IRA accounts, not just the account that funds the conversion itself. If this was your only IRA of that type, a conversion would be 22.22% tax free.
One way around this would be if your current employer plan would accept a rollover of your pre tax dollars, leaving only the 40k in the TIRA. Then the conversion would be tax free. However, not many employer plans will accept an incoming rollover from a contributary IRA, ie an IRA not funded by a prior employer plan rollover (aka Rollover IRA).