Can non-deductible IRA monies convert to a Roth IRA?
I have a traditional IRA of which I have made exclusively non deductible ira contributions to this ira due to my income levels at the time of contributions. Can I convert this ira to a roth ira?
I have a traditional IRA of which I have made exclusively non deductible ira contributions to this ira due to my income levels at the time of contributions. Can I convert this ira to a roth ira?
Permalink Submitted by Alan Spross on Thu, 2010-06-03 19:19
Yes, you can convert any owned IRA to a Roth IRA, however you must combine all your owned IRAs to determine how much of your conversion is taxable using the pro rate rules. Form 8606 is used to report the conversion and also to calculate the taxable amount. Since all your IRAs must be combined, it makes no difference which IRA you choose to convert. The taxable portion will be the same either way. Hopefully, you filed an 8606 each year you made non deductible contributions so that you will get credit for these contributions already having been taxed.
Permalink Submitted by Kevin Zoltek on Fri, 2010-06-04 03:46
OK, I did have 3 IRA’s. I, recently, rolled the other 2 over to my 401k plan. So, do I need to include these rolled over 401k monies when applying the pro rate rules on form 8606?
Also, I do not know if my CPA has filed form 8606 each year. If, by chance, he did not – do I still have time to complete form 8606 for the years that I did not file in that respective year?
Permalink Submitted by Alan Spross on Fri, 2010-06-04 04:07
Since the IRA accounts you rolled into your 401k account will have a zero balance on 12/31/2010, they do NOT count in the pro rate calculation on Form 8606. This is stated in the 8606 instructions.
If you did not file the 8606 each year you made a non deductible contribution, you can still file them retroactively starting with the oldest year (1987 is the first year a non deductible contribution was possible) since your total basis shown on the form is cumulative. The IRS has been accepting these without penalty, but if you claim a non deductible contribution in error, all bets are off. It may take some research to reconstruct this information depending on how many years of tax returns and IRA records or Form 5498 you have retained. If you don’t have this info, you can request it from the IRS.
Your CPA must use professional level tax software which will automatically kick out either an 8606 if your contribution is entered and cannot be deducted. So the issue is how many years have you used this CPA, and did you provide him with the correct info to start with? But your efforts should pay off since your rollover to the 401k should result in a much higher portion of any conversion you do being tax free when your 8606 basis is applied.