Combing Traditional IRA with nondeductible IRA

Submitted by Patrick Hinton on Wed, 2017-10-18 05:05

I have 2 traditional contributory IRAs that are made up of pre-tax contributions that I received a tax deduction upon making my contributions several years ago.

Over the last few years, I have not been eligible to receive a tax deduction on my IRA contributions, so I have made non-deductible contributions to separate IRA.

My question, can I combine the two types of IRAs? I would like to do so for ease of management.

What are the tax and other ramifications for combining these two IRAs? How are distributions treated? I am in my early 60’s and do not plan on taking any funds until age 70.5.

I do have form 8606 for my contributions to the non-deductible IRAs.

looking forward to the groups guidance.



Submitted by Alan - IRA critic on Wed, 2017-10-18 19:15

  • There really is not two types traditional IRAs, there is only two types of contributions. It makes no difference whether a non deductible contribution is made to a separate IRA account or not. For tax purposes all TIRAs are treated as a single combined account. Therefore, there is no reason not to combine them (do by direct transfer to avoid a reported rollover).
  • For each year you made a non deductible contribution, you had to file Form 8606 to report it. and apparently you have done that. These forms are cumulative, so they add your non deductible total (known as IRA basis) from one year to the next. Form 8606 applies over all your TIRA accounts, not to any particular account. Combining the accounts therefore will not affect your 8606 form at all or produce a taxable event. 
  • When you take a distribution (RMD or otherwise), Form 8606 is also used to compute the taxable amount of that distribution on a pro rata basis. For example, if your total IRA balance is 100k and your total basis on line 14 of your last 8606 is 10k, then 10% of each distribution is non taxable. Let’s say your first RMD was 4,000 under this example. Form 8606 would result in 3600 of that RMD being taxable and 400 being non taxable. Your basis of 10k would be reduced to 9.6k for future use.
  • If you are still working and have a good 401k (low expenses and good investment options), there is something you might consider to simplify things and reduce future taxes. If your 401k or other employer non IRA plan will accept a rollover of the pre tax portion of your IRA, you can roll that amount into the 401k. In the above example of a 100k IRA, the max you can or should roll into the 401k would be 90k, the pre tax balance. That leaves 10k in your IRA which you can then convert to a Roth IRA tax free. From then on, gains on the 10k will be Roth gains that will not be subject to tax or RMDs. When you retire you can do a direct rollover of the 401k plan to a rollover IRA that will be fully pre tax and you will not have to deal with pro rating of Form 8606 on your TIRA again.

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