IRA to Roth question
I have multiple IRA types:
Pre tax Traditional IRA
After Tax Traditional IRA
Pre Tax Rollover IRA from a previous employers qualified plan
Roth IRA
If I wanted to do an IRA to Roth conversion I would have to consider all of the IRAs except the Roth and pay taxes on the pre tax portion? In other words it is assumed that it is all one IRA with both pre and after tax proportions. Do rollover IRAs have to be included or does it just apply to traditional?
My present 401k plan allows me to do an incoming rollover into my 401k of rollover IRAs fron qualified plans only (they call it a conduit IRA). Can I reduce the pretax portion by rolling only the pretax rollover IRAs into my 401k leaving mostly after tax to convert to the Roth?
Thanks in advance for replies
Permalink Submitted by Alan Spross on Tue, 2011-01-11 23:26
Yes, you would have to consider the balances of all your traditional, SEP or SIMPLE IRAs whether rollover IRAs or not. Form 8606 is used to report such conversions and calculate the pro rated amount of basis that applies.
You can roll over the pre tax balance in the above IRAs to an employer plan that will accept such a rollover. If the plan will accept the entire pre tax balance, it would leave behind only the after tax amount and you could convert that remaining amount tax free. Many plans such as yours will not accept rollovers from IRAs that are not conduit (aka rollover) IRAs because they are afraid of receiving after tax amounts and this would cause the plan major problems.
Permalink Submitted by tomtom on Wed, 2011-01-12 17:06
Thanks OP for asking my question! I have transferred TIRA funds into my Solo401K, leaving funds to satisfy my basis/ contributions. My IRS-8606 for 2010 will reflect this transfer. My accountant is ambivalent that I have indeed isolated the basis. In my review, I am unable to specifically find a reference regarding this.
Permalink Submitted by Alan Spross on Wed, 2011-01-12 21:06
See the final point for the completion of line 6 in the 8606 Inst:
http://www.irs.gov/pub/irs-pdf/i8606.pdf
Omission of that rollover to the QRP removes that amount from the calculation of taxable % for a conversion in Part I of the 8606.
Permalink Submitted by Jeff Eick on Wed, 2011-01-12 23:40
I could futher increase my after tax IRA holdings by contributing the full amount for the 2010(previous year) and 2011 years now. Can I do the final after tax IRA to Roth conversion before I turn in my form 8606 with my taxes for the 2010 and 2011 years?
Permalink Submitted by Alan Spross on Wed, 2011-01-12 23:57
Yes, you can do a conversion at anytime without regard to the date you file your tax return.
You would report your 2010 non deductible TIRA contribution on the 2010 8606, Part I with your 2010 return.
The same for 2011, but for 2011 you would also report your Roth conversion on Parts I and II of the 8606.