TIRA contribution and Roth Conversion

Submitted by Don Warnke on Mon, 2016-11-14 20:35

Individual is single and makes too much to contribute directly to Roth IRA. she would like to get some dollars in a roth account but does not want to increase tax burden by converting TIRA to Roth. she does not have access to employer sponsored plan and is eligible for make deductible TIRA contribution. Can she contribute to TIRA and make roth conversion from the same TIRA in the same year. this would allow her to get dollars into her roth account without increasing current tax burden?



Submitted by Alan - IRA critic on Mon, 2016-11-14 20:57

  • Yes, for a deductible TIRA contribution and conversion of the same amount, the deduction offsets the taxes due on the conversion. Any deduction would apply to the year the contribution is FOR, so if she contributes for 2016 in either 2016 or 2017 she gets the deduction for 2016. If that contribution is not made until 2017 for 2016, the conversion will be taxable in 2017, so this offset will be in different tax years. Remember, if the individual has a basis from prior non deductible contributions, any conversion will be partly non taxable since all IRA accounts are combined for tax calculation.
  • If there was no prior TIRA balance, if she did not deduct the contribution and converted it right away, the end result would be the same. There would be no deduction, but also no tax on the conversion. This is what is done in the “back door Roth” strategy when the taxpayer makes too much to make a direct Roth contribution. It is an indirect way to get that money into a Roth. But if there is a prior pre tax IRA balance, the conversion will be mostly taxable under the pro rate rules per Form 8606.

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