Moving only earned dollars out of a deductible Traditional IRA into another T IRA
I have a 401k account (from a previous employer) that I plan to rollover into a new Traditional IRA account. There should be no tax implications for this rollover.
I also have a deductible 2001 Traditional IRA account that I opened and funded in March 2002. Assume that I funded that account with $2500 of my pre-tax dollars, and this account currently is $5500. I do not have any other Traditional IRA accounts. I would like to convert this 2001 Traditional IRA account into a Roth IRA account, and understand that the earnings of $3000 would then be taxable as per my current tax bracket.
Is it possible for me to move the earnings of $3000 into a new traditional account, and then convert the remaining $2500 (the original basis or contribution) in the 2001 Traditional IRA account to a new or existing Roth IRA account? If this can be done, I would be avoiding a tax event on the earnings of $3000.
Permalink Submitted by Alan - IRA critic on Wed, 2014-02-12 20:46
If you deducted the 2500 contribution, then the entire IRA is pre tax and would be taxed in a conversion. If you did not deduct it and filed Form 8606 to report the 2500 as non deductible, then only the earnings would be taxed in a conversion. You cannot separate the contribution and earnings into different accounts since all of your TIRA accounts are combined as a single account for tax purposes.