Non deductible IRA conversion
For tax year 2018 I made a non deductible IRA contribution directly into a separate non deductible IRA account on its own for for 7000.00 which is where it still remains plus gains. Am I able to convert this separate IRA account to a Roth now on its own. It has always been in its separate account since it was opened. I do have another Traditional IRA and a Roth. I am trying not to included the total of all my IRA’s into the calculation and just do this one on its own for the entire balance. Can I do this? Thank You.
Permalink Submitted by Alan - IRA critic on Fri, 2021-10-22 16:57
Unfortunately, all your TIRA accounts are treated as one combined account for distribution or conversion purposes. As such, there was no benefit to maintaining a separate account for the non deductible contributions. You could have made those contributions to the other TIRA and the result would be the same. Note that conversions are reported on Form 8606, and line 6 requires the total year end values of all your owned non Roth IRAs including SEP or SIMPLE IRAs as well.
However, there is a way around this. If you were able to roll your pre tax IRA value to an accepting employer plan (eg 401k if you have one that accepts pre tax IRA rollovers), then you can convert your IRA basis tax free. You would do the rollover to 401k first, leaving your IRA basis behind, and when that is done you can convert the remainder tax free. You should determine if such employer plan has good low cost investment options or the rollover may not be worth it. If you want to proceed, I would get started on it ASAP. Under pending Biden tax proposals, you would not be able to convert IRA basis to Roth after 2021, so you should act this year to avoid being stuck with this basis and pro rating all distributions indefinitely.