Converting Simple IRA and Rollover IRA?
Here’s an IRA conversion question that doesn’t seem to be answered in your
various scenarios. But I bet it applies to a lot of people.
Wife has two IRAs. One — with about 200000 in it — originated as a 401-k,
now a Rollover IRA. All of the original contributions were pre-tax. The other —
with about 50,000 — is a simple IRA. All the contributions were non-deductible
and thus post-tax.
Question: Can she convert only one IRA (the one with post-tax contributions) and
use as basis ONLY the contributions to that account OR does the basis require
including all of the original 401-K contributions?
Permalink Submitted by Alan Spross on Thu, 2010-11-18 20:16
A person can convert from any of their IRAs, but the % of basis must include all owned traditional, SEP and SIMPLE IRA accounts. This means that all conversions have the same % of basis and therefore the same tax bill regardless of which type of IRA is converted. These calculations are done on Form 8606, which must be completed for all conversions from one of these IRA types to a Roth IRA.
Also, note that SIMPLE IRA contributions are made from salary deferrals or company matches, and are fully pre tax. A SIMPLE IRA would therefore have no non deductible contributions. But the rollover IRA could have after tax contributions in it from the 401k rollover. An 8606 would also be used to report the after tax amount added to the IRA from the 401k.