Roth Conversion from Non Deductible IRA
Is there any reason or rule preventing a taxpayer from contributing to a Non Deductible IRA (because one spouse is covered by a qualified plan and they exceed the income threshold for direct Roth contribution) and then, in the same year, using the Roth Conversion rules to move that money into the Roth? I know you must compute a taxable portion if you have both Non Deductible and Deductible IRAs but what if you had no Deductible IRA’s.
Permalink Submitted by Alan Spross on Fri, 2010-06-11 23:26
No reason this cannot be done. In fact, this “work around” to the regular Roth contribution income limits has been widely published.
The sooner the conversion is done after the contribution, the more likely that either a small loss or small earnings gain will be avoided. With any gain, a small portion of the conversion will be taxable. With a small loss, the possibility of claiming an itemized deduction is reduced due to the 2% of AGI limit for that deduction.
Some pundits think that this “work around” will not sit well with Congress and the ability to execute it will be eliminated in some fashion. But might as well take advantage of it as long as you can.