Non-deduct IRA contr then convert to Roth
Have young couple who’s modified AGI this year will be 200K. They have Roth IRAs. Couldn’t they do a non-deduct Trad IRA contr then immediately convert to their Roths each year? TA
Have young couple who’s modified AGI this year will be 200K. They have Roth IRAs. Couldn’t they do a non-deduct Trad IRA contr then immediately convert to their Roths each year? TA
Permalink Submitted by Alan Spross on Fri, 2011-01-07 18:55
Yes, they can do that. And if they have no other TIRA accounts, the immediate conversion of those contributions will be tax free. If they did not contribute for 2010 yet, they could make the contributions for both years and then convert. This strategy can be repeated every year and is a work around for not being eligible to make regular Roth contributions due to income. Both the non deductible TIRA contributions and the conversion will be reported on Form 8606 for each of them.
The tax free conversion is impaired if they rolled over any employer plans to an IRA since their basis would then be pro rated over the entire balance. The conversion would then be mostly taxable, even if they did the conversion much earlier in the year the rollover was done. So you might warn them about that.