Taxation of Roth conversion with a 401k to IRA pending

Submitted by Terrence Herr on Tue, 2014-05-06 14:44

Can someone do a tax free conversion of an IRA (funded with non-deductible contributions) when at the time of conversion, no other IRAs exist. However still do a 401k rollover into an IRA within 30-60 days after the conversion?

Is the tax determined based on the IRAs in existence at the time of conversion or based on the IRAs in existence during the calendar year?



Submitted by Terrence Herr on Tue, 2014-05-06 14:59

Would this impact a spouses ability to convert (tax free) to a Roth if he doesn’t have any IRA accounts?

Submitted by Alan - IRA critic on Tue, 2014-05-06 15:56

  1. The taxability of a conversion is determined by the adjusted TIRA balance at the end of that year. Therefore, a 401k rollover before the end of the conversion year will result in the conversion being mostly taxable. For example, a 5000 non deductible contribution converted with a 45,000 401k rollover before year end will result in 4500 of the 5000 conversion being taxable. With no rollover the conversion would be tax free except for any earnings on the contribution before the conversion. Form 8606 does all the math to determine the exact amounts.
  2. The above does not affect the other spouse as each spouse’s IRAs and 401k accounts are separate from the other spouse, and each spouse files their own individual 8606.

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