Roth Conversion Denominator
Is an active Simple Plan included in the denominator of the taxable/non-taxable calculation?
As I understand from the newsletter, any account that is eligible to be rolled to an IRA must be included in the denominator. ie: an inactive 401(k) can be converted to an IRA so would be included int he denominator. Is an active Simple Plan eligible?
Thank you.
Mark
Permalink Submitted by Anonymous (not verified) on Mon, 2009-11-30 16:47
The tax form that calculates your conversion amount includes it. So, yes.
IRS Form 8606 (see Part I and II)
http://www.irs.gov/pub/irs-pdf/f8606.pdf
pmk
Permalink Submitted by Alan Spross on Mon, 2009-11-30 19:13
Mark,
The denominators differ based on the source account for the conversion, not the destination account which is always a Roth IRA following a conversion:
1) If an IRA is being converted (TIRA, SEP or SIMPLE), then the denominator includes the adjusted year end values of all ALL IRA accounts.
2) If a qualified plan is being converted directly to a Roth IRA, then the denominator only includes the value of that particular plan. IRA values are NOT considered. There is also an exception for the conversion of ONLY pre 1987 after tax contributions, as these can be kept separate from other account values. Form 8606 does not apply to these conversions.
While quite rare, it is also possible to have a SIMPLE plan under a 401k and these plans do NOT use IRAs. Therefore, they fall into category 2 above.
Permalink Submitted by Mark Mauro on Mon, 2009-11-30 19:14
Thank you for taking the time to respond.
Mark