Just want to be sure I understand how to calculate the amount I will be paying taxes on in 2010 if I convert a small IRA with some nondeductible contributions. My IRA accounts consist of:
$1,670,000 (deceased husband’s 401K rolled over in 2008 to a Rollover IRA in my name)
44,000 (IRA in my name)
44,000 (Rollover IRA in my name from deceased husband)
23,000 (IRA Annuity with half from deceased husband but has been rolled over to my name)
21,750 (IRA in my name (some had belonged to deceased husband before rollover to my name)

I am probably going to convert some of these IRAs this year and and subsequent years to Roth IRAs. The only IRA with nondeductible contributions is the one valued at $21,750. I have my old tax returns and Forms 5498 but I don’t have Forms 8606. I understand Forms 8606 will need to be filed with the IRS to establish these contributions. I was under the impression I could convert this small IRA first and taxes due would be on $21,750 minus the contributions of $9,500 or net income of $12,250. The other IRAs would be converted and the total amount being converted would be taxed.

Does the total value of all my IRAs need tobe considered to find out the actual amount of the small conversion that will be taxed? It seems like the amount of income that will be taxable would be more than $12,250.

From my calculations, I determined that based on the large total of my IRAs, the actual amount taxable of the small IRA would be $21,635 (only $115.00 of nondeductible contributions would be allowed against the $21,750 conversion). Is this correct? Am I missing something? It seems like the IRS will make me stretch the $9,500 nondeductible contribution over the entire total of my IRAs.

I wasn’t sure if I needed to include my deceased husband’s 401K value that was rolled over in 2008. If so, I guess I should have rolled over the small IRA before rolling over the 401K.

If all of the above is correct, I’m thinking about not even worrying about the $9,500 nondeductible contributions and convert these IRAs as if there were no nondeductible contributions and just pretax money.

I probably should have converted some of these IRAs last year when the accounts were off considerably but it was hard to voluntarily pay taxes with values tumbling daily. Any suggestions to accomplish these conversions simply would be appreciated.

I know I can spread out the tax bill over 2 years for any 2010 conversions but the increased tax rates make that choice less desirable.

Could anyone recommend a good accountant in the Western MA, Albany, NY or NYC area? Thanks. Sorry this post is so long.
Judy