Roth Conversion – Many moving parts
$5000 Traditional IRA (all aftertax dollars)
$2800 SEP IRA – active sole proprietor (separate from gov’t job)
$70,000 Traditional IRA (all pretax)
$150,000 457(b)- active employee
Step 1: Client transfers their $70,000 Traditional IRA (all pretax)to their 457(b)and it is coded as a rollover.
Step 2: Client transfers active SEP IRA balance into 457(b)also coded as a rollvoer – Is that allowed if the SEP is actively making annual contributions?
Assuming Step 2 is allowed…
Step 3: Client converts $5,000 Traditional IRA (all aftertax dollars) to Roth IRA is the “denominator balance” for the conversion on the day of the conversion or on 12/31/xx?
Pleas advise what I might be missing?
JB
Permalink Submitted by Alan - IRA critic on Fri, 2013-05-17 17:02
Steps 1 and 2 are allowable. The taxable portion of the conversion is figured on Form 8606 using the 12/31 balance for the year the conversion is made, not the balance on the date of the conversion. If there is no non Roth IRA balance on 12/31 of that year the conversion will be tax free up to the amount of basis (5,000) from non deductible contributions as reported on Form 8606.
Permalink Submitted by Julie Bates on Fri, 2013-05-17 17:15
Thanks Alan. I wanted to be sure I wasn’t missing or overthinking anything. Appreciate the help! JB