Roth conversion
T-IRA account owner has a number (not all) of MLPs that are underwater
All MLPs are currently “housed” in a single T-IRA
Owner would like to transfer a few of the underwater MLPs to a separate (new) T-IRA and subsequently convert the MLPs to separate Roth IRAs (having a single MLP investment) thus avoiding aggregating earnings/losses.
In essence each conversion would be tax-free since the MLP value is below his basis
Please confirm this strategy is permissible
Thank you
Permalink Submitted by Alan - IRA critic on Thu, 2016-02-25 18:00
This can be done, but IRA owner needs to be sure that his IRA basis is correct. It ignores the cost basis of any of these MLPs and consists solely of non deductible contributions made to any of his IRAs and any after tax money rolled over from a qualified plan. Any basis must be documented on Form 8606. If his IRA basis actually exceeds the current FMV of his TIRA, conversion is a no brainer because it is non taxable. A non taxable conversion would rarely be recharacterized, and only in a very unique set of circumstances. Therefore, the Roth conversion strategy of “selective conversions” appears to be an unnecessary complication in this case. Now if his conversions will be mostly taxable because he does NOT have IRA basis, then his idea makes more sense.