Nondeductible IRA rollover to Roth
For the last couple of years I have been making non-deductible Traditional IRA contributions. Some earlier confusion had me believe that I made too much money to be able to deduct my IRA contributions. Regardless, I want to do a rollover of this account to a Roth IRA. I have had some earnings above my contributions. Other than reporting the gains as income, do I have any other issues with this rollover?
Permalink Submitted by Alan - IRA critic on Thu, 2024-09-05 16:18
Sounds like you TIRA balance consists of prior deductible contributions as well as the recent non deductible contributions. You should have reported any prior ND contributions on Form 8606, which provides a cumulative total of these contributions on line 14. Any conversion you do will include a pro rated non taxable portion. For example, if your total IRA balance was 100k, of which 15k came from ND contributions, then 85% of any amount you convert will be taxable. Therefore, you should determine what this ratio is before determining how much to convert.
If you never made deductible contributions in the past, then your gains on the recent ND contributions are probably not enough to generate much taxable income from making a total conversion. Finally, note that if you have any rollover IRAs, SIMPLE IRAs, or SEP IRA balances, they are all treated as one combined IRA, so you will have to factor in the balance of all of these other IRA accounts if you have them.