DB to IRA to PSP to Roth??
I have a client who had a DB plan. He sold his business and terminated the DB plan in Aug 2009. He rolled the proceeds into an IRA. With the new Roth rules, he’d like to convert his non-deductible IRAs to Roth. As I understand, he should roll his pre-tax IRAs into his PSP. This will allow him to convert ONLY his non-deductible IRAs and get the full exclusion from tax. After the conversion, he can roll his entire PSP into a pre-tax IRA and convert it all to Roth?
Is the above all correct, and can this all take place in 2010 so he can get the 2010 benefit of paying the conversion tax in 2011 and 2012?
Thanks in advance for the help.
Permalink Submitted by Alan Spross on Fri, 2010-02-12 19:45
It is true that transferring the IRA pre tax balance into the PSP would enable the remaining IRA basis to be converted tax free. But there is no reason to go through that process if he also wants to convert the pre tax portion of the IRA, since the total tax bill will be the same either way. He should just convert as much of the IRA as he wishes to a Roth and the proportion that is after tax will be tax free. Hopefully, he filed Form 8606 for the years that he made non deductible TIRA contributions.
A conversion done in 2010 can be reported @ 50% in 2011 and the other half in 2012, or client could opt out and report the entire conversion in 2010.