Roth IRA conversion & non-deduct. IRA & 401k to IRA Rollover
Having non-deductible TIRA right now, no other deductible TIRA right now. Likely will have to rollover employer 401k into IRA.
If doing the Roth conversion on the non-deductible IRA this year, I guess i should wait till next year to do rollover of 401k to IRA, in order to pay only the taxes on the non-deductible portion of the gains of the IRA Roth conversion, correct?
If I do the rollover this year , would I be taxed on the total amount, or better said pro-rata amount of non-deductible and rollover IRA? I hope someone understands what I am trying to get at… My previous question in this forum dealt with the TIRA conversion with only a non-deductible IRA with high percentage of basis, but now i might have to throw in a rollover IRA with a higher balance than the non-deductible TIRA … how will that affect how I should handle a Roth conversion? Maybe not doing a Roth IRA conversion at all?
Thanks for any input/help,
N.
Permalink Submitted by Alan Spross on Thu, 2012-07-19 03:19
If you do the 401k rollover this year, the value of all your TIRA accounts would increase and the % of basis would decrease. This would cause a 2012 Roth conversion to be taxable to a much greater extent than if you waited until 2013 to do the 401k rollover.
The specific % of your conversion that would be taxable is calculated on Form 8606. You should get an 8606 and fill in the numbers in order to determine how the rollover would affect your taxes. When completing the form, all your TIRA, SEP IRA or SIMPLE IRA accounts are combined in the calculation as if you only had one account. Your basis in your TIRAs floats over all the accounts and is not limited to a single account, therefore technically you do not have a deductible or a non deductible IRA account, you just have deductible or non deductible contributions. It does not matter which account you use to fund the conversion either since they are all combined when doing the calculation.
It is possible that your 401k may also include some after tax contributions, so when you do the rollover you should remember to add any after tax values to your next Form 8606 to get credit for increased IRA basis.
From your question, it appears that you had this pretty well figured out already.