Non-Deductible IRA converted to a Roth
Does anyone know if one can contribute to a non-deductible IRA and then convert it to a Roth in the same year or do you have to wait a year in between?
Any info and reference to a pub or reg would be greatly appreciated.
Thanks in advance.
Nick
Permalink Submitted by Alan Spross on Wed, 2010-12-29 17:23
Nick,
You can contribute to an IRA and convert it the next day if you wish. There is no waiting period for conversions. A non deductible contribution is reported on Form 8606 in Part I and the conversion in Part II. Of course the pro rate rules apply over all your TIRA, SEP IRA and SIMPLE IRA accounts and therefore the conversion is tax free only if you do not have these other IRA accounts that dilute the tax free portion of the conversion.
Pub 590 addresses conversions on p 28, and is consistent with the Inst for Form 8606. There is no mention of a waiting period in either place. The only waiting period I can think relative to conversions is the 30 day waiting period or until the next calendar year, whichever is longer to reconvert an amount that you have recharacterized.
Many people whose incomes in the past were too high to make a deductible contribution or a Roth contribution and therefore have no IRA accounts are planning on making non deductible TIRA contributions every year and then converting right away tax free. The net result is the same as making a regular Roth contribution.