ROTH IRA CONVERSION
MY WIFE AND I EACH HAVE IRAS THAT ARE FUNDED WITH NON DEDUCTIBLE (POST TAXED) MONIES DUE TO THE FACT THAT I HAVE A LARGE SELF EMPLOYED TARGET DEFINED CONTRIBUTION PLAN AND CANNOT PARTICIPATE IN A DEDUCTIBLE IRA. SINCE THESE IRA’S HAVE BASIS, CAN WE CONVERT THEM IN 2010 TO A ROTH AND ONLY PAY TAX ON THE EARNED INCOME PORTION OF THE IRA’S? OUR INCOME IS OVER THE ROTH CEILING BUT I UNDERSTAND THAT IN 2010 THAT CEILING AMOUNT IS WAIVED.
Permalink Submitted by Alan Spross on Tue, 2008-06-17 01:30
You are correct that after 2009 the conversion income limits no longer apply, so anyone can convert that is willing to incur the taxes.
Other than deferring the taxes to 2011 and 2012 for 2010 conversions, the taxes for conversions are the same as for distributions that are not converted. All of your TIRAs, SEP and SIMPLE IRAs are combined into one large account and your basis as reported on Form 8606 amounts to a percentage of the total balances. That % is the tax free share of a conversion regardless of which of your IRAs are converted.
Therefore, if your ONLY such IRAs are those that you made non deductible contributions to fund, then only the share that represents earnings on those contributions is taxable upon conversion.