Nondeductible IRA to a Roth
Here are the facts:
1. Taxpayer converted all of the traditional IRAs he had to a Roth IRA in 2010.
2. Taxpayer cannot make a current year (2010) Roth IRA contribution due to the AGI limitation.
Question:
Can the taxpayer make a nondeductible IRA contribution for 2010 and then subsequently convert same to a Roth IRA in 2011? For example, make a nondeductible IRA contribution on April 15 and convert it to the Roth IRA on April 18. The basis in all traditional IRAs would be $5,000. The conversion amount would be $5,000.
If it sounds like a “back door” contribution, it is. Is there any statutory prohibition against this? If there is, I can’t find it. Thanks.
Permalink Submitted by Alan Spross on Tue, 2011-03-29 21:00
There is no prohibition and this is an effective work around to the Roth IRA income limits for regular contributions.
Taxpayer could make both the 2010 and 2011 non deductible IRA contributions and then immediately convert the total and it would be tax free providing there are no other IRA accounts for the entire year. That means that there can be no qualified plan rollover prior to the end of 2011 or the tax free conversion would be altered into a mostly taxable conversion.
If taxpayer make the non deductible contribution for 2010, it needs to be reported on Form 8606 for the 2010 return, ie the same 8606 form used to report the 2010 conversion. This will not affect the taxation of the 2010 conversion because the contribution is being made in 2011.