Several IRAs, Nodeductible contribs convert to Roth
1.)Is there any limitation on the number of Traditional IRAs that an individual can convert in any given year which contain non deductible contribs?
2.) The client would ideally like to convert only the non deductible contribs of several IRAs into one Roth IRA.
I am unclear if this is allowable by IRS rules and regulations pertaining to Roth conversions.
This question has not been presented to me thus far. I am meeting with a prospect who would like to to do this.
The assets are held in several IRAs, each with deductible and non deductible contribs.
I understand that a 1099r will be generated from the institution that converst and the client completes 8606 and attaches with 1099r and 1040
at filing time.
Permalink Submitted by Alan Spross on Mon, 2011-10-17 19:43
All owned TIRA accounts are considered combined with respect to the amount of non deductible contributions. While there is no limit on the amount of conversions, the calculation for each one would be the same. If the client’s total reported non deductible contributions on Form 8606 for all accounts is 2x and the total value of all the accounts is 10k, then 20% of each conversion will be tax free regardless of which IRA is converted.
The result would therefore by the same if client had just one large TIRA account and converted all or parts of it. Whether the conversions are made to different Roth accounts is also not a factor. But each separate IRA account that is converted will produce it’s own 1099R. The IRA custodian does not know the amount of non deductible contributions, so they cannot determine a taxable amount. The client does that with the 8606 calculation.
However, there is ONE possible way to make the conversions tax free. If the client has a qualified employer plan (eg 401k) that will accept rollovers from an IRA, client could combine all the TIRA accounts and then roll the pre tax amount into the employer plan. That would leave only the non deductible contributions in the IRA and he could then convert them tax free. The rollover can be a hassle, and is probably not worth it unless the non deductible total is worthwhile, and the 401k has good low cost investment options.
Permalink Submitted by Curtis Loveday on Tue, 2011-10-18 15:53
Thank you Alan. 🙂