Non-Deductible IRA Conversion to ROTH-IRA
2013 client MAGI to high to do ROTH or Traditional IRA. He wants to do 2013 Cont to Non-Deductible Trad’l IRA and then next year convert that to a ROTH-IRA. I’ve never heard of this. #1) Can this be done ? #2). What is the tax consequence ? Thank you ! cb
Permalink Submitted by Alan - IRA critic on Thu, 2014-04-10 18:13
He can make the non deductible contribution and convert it immediately (no need to wait). If he has no other non Roth IRA balance the conversion will be tax free. If he has other non Roth IRAs such as a rollover IRA or will have before the end of the conversion year, the conversion will be mostly taxable under the pro rate calculation done on Form 8606. Even if client originally made a Roth contribution before knowing his income would be too high, he could simply recharacterize it as a TIRA contribution and then convert back to a Roth. Any earnings from the regular Roth contribution or in the recharacterized TIRA would be taxable upon conversion, as well as the effect from any other non Roth balance as described above.