Roth Conversion of a non-deductible IRA
Just ran across a client with a non-deductible IRA.
If we were to convert to the Roth, what are the tax implications? Only the growth gets taxed?
Thanks.
Just ran across a client with a non-deductible IRA.
If we were to convert to the Roth, what are the tax implications? Only the growth gets taxed?
Thanks.
Permalink Submitted by Alan Spross on Tue, 2012-03-06 22:21
If the client did not file an 8606 for the year of the non deductible contribution(s), the entire amount will be taxable.
If the 8606 was filed and this is the ONLY TIRA, SEP or SIMPLE IRA owned, then only the gains are taxable. If he should have filed an 8606 but did not, he can retroactively file the Form with the IRS.
If client has other IRAs noted above, then the taxable portion is determined by pro rating the amount of non deductible contributions per 8606 forms on file with the total balance of all these IRAs. For example, if client has a pre tax rollover IRA of 90,000 and the IRA you are referring to is worth 10,000 and 5,000 was the non deductible contribution amount, then 95/100 of the conversion would be taxable. This is all calculated on Form 8606 filed with the return for the year of the conversion.
Permalink Submitted by Tony Pondel on Wed, 2012-03-07 02:14
Thank you