After-tax conversion to Roth IRA

Submitted by Bill Waggoner on Thu, 2018-02-08 15:25

Does anyone know if a client has commingled after-tax and pre-tax contributions to an IRA, can they rollover just the after-tax contributions to a Roth or is it prorated?



Submitted by Alan - IRA critic on Thu, 2018-02-08 15:49

  • No, they cannot roll just the after tax over. Form 8606 computes the taxable amount of any conversion and the pre tax and after tax balances are pro rated. All non Roth IRAs of an owner are included in the calculation, not just the account that is making the distribution. Therefore, having separate IRA accounts for non deductible contributions does not change this pro rating.
  • However, there is a special exception rule that can enable a non taxable conversion. If a client is participating in a 401k or 403b plan that accepts rollovers of pre tax dollars from an IRA, the client can roll just the pre tax balance into the plan, leaving only the non deductible contributions that have been reported on Form 8606 behind. This amount can then be converted to a Roth IRA tax free.

Submitted by Bill Waggoner on Thu, 2018-02-08 18:57

11Thank you for the response about pro-rate conversions for after-tax contributions.  You mentioned above that the pro-rata includes all other IRAs, does that include money still in a 401k? 

Submitted by Alan - IRA critic on Thu, 2018-02-08 23:31

No, just traditional, SEP and SIMPLE IRA accounts that are owned, but not inherited.

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