Converting Non-Deductible Contributions from Form 8606 to Roth
I have deductible and non-deductible contributions co-mingled in my traditional IRA . I am in my 80s and have been taking the RMD distributions every year. I file Form 8606 every year and have the latest pro-rata non-deductible amounts calculated by the tax software every year and carried over year over year during tax time.
How can I transfer the balance of the non-deductible IRA into my Roth IRA account now? Can I take the $xxx.. calculated as the pro-rata non-deductible amount from last year’s Form 8606 and transfer it to my Roth account, or is there any other steps that I have to go through to complete the conversion. Will there be tax consequences to do this conversion?
Thanks for your help
Permalink Submitted by Alan - IRA critic on Fri, 2015-12-18 00:33
Assuming you are retired, there is no way for you to “isolate” your TIRA basis (non deductible amount on line 14 of Form 8606) to convert it to a Roth IRA. Form 8606 is used to calculate the taxable portion of any distributions as you have seen in reporting your annual RMD, and the taxable portion of a conversion is exactly the same as your RMD. So if your RMD is 95% taxable, a conversion would also be 95% taxable. Since you can only convert after you have first distributed your annual RMD, a conversion could push you into a higher bracket. You would also have higher MAGI, which could increase your Medicare premium by quite a bit. That said, there can be various reasons to convert such as the tax bracket of your beneficiary or to reduce your taxable estate, in addition to possible longer term tax reductions for yourself in the future. But any conversion involves paying more taxes up front with the expectation of lower taxes later on. A detailed analysis would be needed to determine if there are any expected benefits to converting to a Roth IRA.
Permalink Submitted by n2b on Fri, 2015-12-18 20:45
Alan. From what you wrote it looks like we cannot separate the non-ded portion from the deductible portion out of the co-mingled IRA. I will leave everything as-is. Thanks