Roth Conversion
I have a married couple that make to much money to contribute to Roth IRA. Husband participates in 401k. Will it create any issues if they make nondeductible contributions into a Traditional IRA then convert them periodically convert them to Roth IRA?
Permalink Submitted by Alan - IRA critic on Thu, 2013-05-23 16:02
They can make non deductible TIRA contributions and then convert them. However, their conversions will be tax free only if they hold no pre tax IRA values including rollover IRAs, SEP, or SIMPLE IRAs. If they have these other IRA balances, the taxable amount of any conversion will be pro rated using all those accounts. If they do not have pre tax IRA amounts, they should convert right after making the non deductible contributions, rather than waiting until the contributions generate earnings which would be taxed when converting.
Permalink Submitted by Don Warnke on Fri, 2013-05-24 14:37
If there were rollover IRA values, SEP or SIMPLE IRA, would it matter who owned them in the household? Also if they continue this Roth coversion processes then sometime down the road convert the husbands 401k to an IRA would that then creat a problem for the existing Roth IRA?
Permalink Submitted by Don Warnke on Fri, 2013-05-24 13:55
If there were rollover IRA values, SEP or SIMPLE IRA, would it matter who owned them in the household? Also if they continue this Roth coversion processes then sometime down the road convert the husbands 401k to an IRA would that then creat a problem for the existing Roth IRA?
Permalink Submitted by Alan - IRA critic on Fri, 2013-05-24 16:15
Any other non Roth IRAs owned by others including spouses does not affect the conversion tax for the taxpayer. Only taxpayer’s own IRAs are included in the calculation. If the other spouse’s IRAs are converted later on, it does not affect conversions already done by the taxpayer. A 401k or other qualified plan does not affect IRA conversions for that taxpayer unless it is rolled over to an IRA before or in the same year as the conversion.