Aggregation Rules
Hello,
Client has IRA with only 16m all nondeductible ira contributions. Client was going to convert to Roth in 2010, due to lifting of income restrictions on conversions..AND client did a DRT of 700m from a 401k plan unexpectedly in July 2010 to a separate IRA account.
Client clearly can’t convert nondeductible account without triggering aggregation rules this year.
Do the aggregation rules preclude him from just cashing out the nondeductible ira account and walking away with the money with out triggering taxes on the 700m as well?
Secondly if client waits until Jan 1 2011 and has no other IRA transactions in 2011 . can he cash out the nondeductible account without triggering the aggregation rules?
Thank you in advance,
Kevin DeNardo
Permalink Submitted by mk foss on Thu, 2010-09-23 18:23
The Roth conversion won’t trigger the tax on the rollover but most of the conversion will be taxable because of such a large IRA. The aggregtion rules will always be there so delaying a conversion to 2011 won’t help. In order to pay tax on the after-tax contributions only, they would need to roll the pre-tax IRA benefits from all plans into a qualified plan. The qualified plan would need to have a provision that would accept IRA contributions and agree to track the rollover amounts separately.