Immediate Conversion of Non_Ded IRA to ROTH

Submitted by Terrence Herr on Thu, 2014-04-24 14:08

What if any restrictions are there regarding making an non-deductible IRA contribution then immediately converting it to a ROTH?

1)If I have other IRA accounts, but contribute to a separate account, do I still need to aggregate all of the IRAs for tax basis purposes? How is this done?

2) Can I immediately convert the IRA to a Roth once it is received by the custodian or is there a waiting period? Does waiting change the tax issue?

3) Lets say I have $200,000 in an IRA from a 401k rollover, can I still contribute $5500 to an non-deductible IRA and convert to a Roth? What would be the tax issues?



Submitted by Alan - IRA critic on Thu, 2014-04-24 23:57

  1. Yes, all non Roth IRAs must be shown on Form 8606, which will then indicate the taxable % of the conversion. Whether the contribution is made to an existing account or a new IRA is immaterial.
  2. No waiting period, but the conversion will not be tax free if you have other non Roth IRA values at year end.
  3. There are no non deductible IRA accounts. just non deductible contributions. In this example, the result is the same if you made the 5500 contribution to a new IRA account or to the rollover IRA account. It also makes no difference if you converted 5500 from the new IRA account or from the rollover IRA account. Either way, your IRA basis is only 5500 and the total adjusted value is 205,500. resulting in a non taxable % of 2.68% on Form 8606. The non taxable amount would be $147 and the taxable amount would be 5,353. Now if you rolled the rollover IRA back into your current employer’s plan before the end of the conversion year, then the conversion would be tax free because the 200k value would be gone as of 12/31 of the conversion year.

Add new comment

Log in or register to post comments