Non-Deductible IRA conversion to Roth IRA
I am converting a Non-Deductible IRA into a Roth IRA in 2009. They will qualify from an income standpoint for the Roth conversion.. Are there any other pitfalls that I need to be aware of? They do have a qualified IRA that I am not converting.
Thanks for your help!!
Permalink Submitted by Alan Spross on Thu, 2009-02-26 19:54
You must consider all of their traditional, SEP or SIMPLE IRA balances together to determine how much of a conversion is taxable. In other words, look at all these IRAs as if they were a single account. Regardless of the source of the conversion, the total ratio of basis as reported on Form 8606 as it relates to the total account balances will determine the tax free portion. Converting an IRA that received non deductible contributions will be subject to tax at the same ration as if you had converted a fully pre tax employer plan rollover IRA. Since the employer rollover IRAs tend to be larger, much of your conversion will probably be taxable.
Locate the latest 8606 form on file and that will determine the amount of basis you are working with. This is also the form (Parts I and II) that is used to report the conversion itself and calculate the portion of the converted amount that will be taxable.