Rollover after Roth Conversion
My client now has only one IRA with only after-tax money in it. I understand that should be able to be converted to a Roth IRA with no income tax due.
However, he has a 401k with his old employer. I know we need to wait until after the conversion is completed to do the rollover so we do not have to worry about the “cream in the coffee” rule. Do we have to wait until next year?
Jan Sleeter
Permalink Submitted by Alan Spross on Wed, 2010-04-21 21:16
Yes. Rolling over the 401k before year end will dilute the current basis and cause the conversion to be mostly taxable.
The current IRA value would be either more or less than the current 8606 basis. If the basis is more than the value, client would qualify for a possible misc itemized deduction for the difference if they do a total conversion. If the value is more than the basis, a part of the conversion would be taxable.