convert non deductible traditional contributions in 2010 ?
Client with entirely non deductible post tax IRA from 2009. Can he make 2010 non deductible traditional IRA contribution and then convert all to roth IRA a week later ? Steve Podnos CFP
Client with entirely non deductible post tax IRA from 2009. Can he make 2010 non deductible traditional IRA contribution and then convert all to roth IRA a week later ? Steve Podnos CFP
Permalink Submitted by Alan Spross on Tue, 2009-12-29 18:11
Steve,
Yes, even sooner. The conversion can be done the same day the non deductible TIRA contribution is processed, as long as the contribution is processed first. Of course, all TIRA, SEP and SIMPLE IRA accounts must be considered in determining the portion of the conversion that will be subject to tax, if any.
The 2009 8606 must be filed with 2009 return to show the 2009 non deductible contribution plus any prior existing basis. For 2010, the 8606 will show both the 2010 non deductible contribution and the conversion. If the bulk of this conversion will be tax free, the client will probably want to opt out of the two year deferral of any conversion income when the 2010 return is filed.
Note that you also indicated that the current TIRA is fully post tax, and that means the basis is likely to be higher than the account balance when converted. The basis remaining after conversion would qualify for the misc itemized deduction subject to 2% AGI floor if client can otherwise itemize and is not subject to AMT, and all TIRA accounts have been distributed.