Converting IRA to a Roth

Submitted by Robert Sanders on Wed, 2017-05-03 07:56

I have a small traditional deductible IRA, a 401k, a Roth IRA, and a non-deductible IRA. I want to convert the non-deductible IRA to a Roth, but don’t know what to do with the deductible IRA. My 401k provider will allow me to roll my nonconduit IRA into the 401k, but do I lose the special legal protections of a 401k? Can I convert both my deductible and non-dedutible IRAs to Roths, and what is the best way to do this?



Submitted by Alan - IRA critic on Wed, 2017-05-03 18:38

  • There is no benefit to converting one IRA account over another because all your non Roth IRAs are treated as one combined account.  The taxable portion of a conversion will be the same no matter which IRA funds the conversion. The taxable amount is calculated using Form 8606.
  • If your 401k plan will accept IRA rollovers, you could roll the pre tax balance of your combined IRAs into that plan, leaving your basis from non deductible contributions in your IRA. You can then convert that basis tax free.
  • For the IRA balance transferred into the 401k, it acquire 401k creditor protection. It will not reduce the creditor protection for you 401k funds.
  • A 401k cannot legally accept IRA basis in the rollover, so you need know your exact IRA basis before doing a rollover to the 401k. If you filed Form 8606 correctly in the past, the last 8606 you filed will show your basis on line 14. This is the amount that cannot be rolled into the 401k. Besides, you do not want to roll IRA basis in the 401k anyway because you want to convert it to your Roth IRA.
  • The only downsides of rolling IRA money into your 401k are that you may not have immediate access to it, and also if your 401k does not have good low expense investment options, the money will not perform as well as in your IRA.
  • Of course, you could convert some of your IRA as is, but you would pay taxes on the pre tax portion. That is only beneficial if your tax rate is lower than you expect it to be in retirement.

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