Multiple Conversions In One Year
Sir/Madam,
I have a client who just converted her rollover Traditional IRA to her Roth IRA. This Traditional IRA was all pre-tax money so I recognize that her conversion is fully taxable.
We would now like to make nondeductible contributions for 2010 and 2011 to her Traditional IRA and convert those to her Roth. I understand that those would be tax-free conversions, correct?
Is the client permitted to do 2 conversions in the same year?
Thank you.
Permalink Submitted by Alan Spross on Tue, 2011-02-08 21:50
There is no limit on the number of conversions a taxpayer can execute.
Therefore, there is no problem making non deductible 2010 and 2011 TIRA contributions now and then converting them. However, the taxable amount of all 2010 conversions is aggregated using the adjusted year end 2011 balance remaining (if any) plus the conversion amounts. This aggregration results in both conversions being taxed as if there was just one combined conversion, and the basis from non deductible contributions will be the numerator in determining the portion of the conversions total that is tax free.
In other words, for tax purposes she will end up with just one converted amount which will be mostly taxable assuming the rollover IRA to be much larger than the regular contributions. But the final taxable dollars may not be much different that if these were accounted for separately.