Inherited IRA Conversion to Roth; Form 8606
I want to convert all of my traditional IRAs to Roths (some of which have non-deductable contributions.) However, one is an Inherited IRA (non-spouse), from which I take the RMD. I understand I cannot convert the Inherited IRA to a Roth. Because of that, will this be considered a partial conversion on IRS form 8606, requiring completion of Part 1? Must the Inherited IRA be included in the amount on line 6?
Permalink Submitted by Alan Spross on Wed, 2010-02-10 04:56
You are correct that you cannot convert the non spouse inherited IRA. Any 8606 that applies to your conversions of the other IRAs will not include anything to do with the inherited TIRA. If you inherited any basis with the inherited TIRA, it would be reflected on a totally different and separate 8606 from the one that includes your owned IRAs.
It sounds like you have no basis in the inherited TIRA and since you would leave those values off the 8606 used for the conversion, there will be a higher % of your conversion that is tax free.
Permalink Submitted by Jay Marsh on Wed, 2010-02-10 18:19
Thanks for the great new! Making the non-deductable contributions a higher % of the conversion amount was my goal 🙂 . Correct that I have no basis in the Inherited IRA. Is there any advantage to doing the conversion for 2009 since I didn’t take any distributions from the IRAs or make any non-deductable contributions? I am eligible to convert for 2009 due to reduced income in retirement.
Permalink Submitted by Alan Spross on Wed, 2010-02-10 20:33
It is too late to convert for 2009.
That said, if you had taken a distribution from the TIRA in mid December or later, you have 60 days to roll it over as Roth conversion, taxable for 2009. The requirement here is that the distribution from the TIRA MUST be withdrawn in the year for which the conversion will be taxable. But since you indicated that you did not take any distributions, there is no way to do a 2009 conversion now.
The 2010 conversion rules give you more flexibility, including the option to have the conversion reported either in 2010 or in equal amounts in 2011 and 2012.
If you are retired, a conversion may affect taxation of your SS income or Medicare Part B premium in the second year after the conversion income is reported.