Roth Conversion – Non-deductible IRA’s
What do you think of using non-deductible IRA’s for high income earners the next few years and in 2010 converting them to Roth’s, paying taxes on only the gains spread over two years?
What do you think of using non-deductible IRA’s for high income earners the next few years and in 2010 converting them to Roth’s, paying taxes on only the gains spread over two years?
Permalink Submitted by Alan Spross on Wed, 2008-03-12 20:02
It can be a useful strategy, however the benefits are seriously diluted if you have other pre tax IRA assets of any type. The tax free portion is the % of the conversion representing the non deductible contribution balance as a share of the total balance.
The strategy mentions high earners because they have not been able to make regular Roth contributions since the Roth started in 1998, and have not been able to convert for the same reason. It is also likely that they are covered by a retirement plan at work and therefore cannot deduct a TIRA contribution. Based on these factors it was assumed that many of these people do not have an IRA unless they rolled over an employer plan, and therefore might have a high basis % if they started making non deductible contributions now.