Traditional to Roth IRA conversion for this year’s contributions

Submitted by Adam Mathews on Mon, 2018-01-15 21:23

I started a traditional IRA account with the robo investor betterment in 2016, but later I learned the income limits for traditional IRA and realized that I made a mistake. It is now January of 2017 and I’m wondering if I can just change the account to a Roth IRA since the contribution time limit for previous years IRA is not until April, right? I have seen that there are some kind of weird rules for traditional to Roth conversions but would that apply to my situation or just money contributed in previous years and already taxed?



Submitted by Alan - IRA critic on Mon, 2018-01-15 22:46

  • Your 2016 TIRA contribution is a non deductible contribution if you cannot deduct it, it is not an excess contribution. You should report the non deductible contribution on a 2016 Form 8606, which you can file by itself if you did not file it with your 2016 return. It is too late to have the contribution returned to you with any earnings. That deadline was 10/15/2017.
  • If this contribution and any gains is your ONLY non Roth IRA, you can convert the TIRA to a Roth IRA and only the gains will be taxable if you file the 8606 for 2016 above. If you have a rollover IRA or other pre tax IRA balance, then any conversion would be mostly taxable under the pro rate rules.

Submitted by William Tuttle on Thu, 2018-01-18 16:33

In case it wasn’t apparent from Alan’s reply. If you deducted the 2016 IRA contribution and your tax sofftware dosn’t take care of this for you. You should have both a Form 8606 reporting the non-deductible contribution and the 1040X should reflect the removal of the IRA deduction. This will result in increased taxes for 2016. The IRS will likely also bill you for interest.

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