Roth Conversion of a Traditional IRA containing both Deductible and Non-Deductible Contributions

Submitted by Matthew Ottusch on Wed, 2022-12-07 21:14

Opened an IRA in 2017 and have fully funded it every year since. Due to income phaseouts, only the contribution made in 2017 was deductible. Contributions made 2018-2022 were nondeductible.

Assuming the entire account is converted to a Roth this year, how is that treated for tax purposes? Is it correct to say that the $$ amount of deductible contributions, plus any account earnings, would be added to taxable income and all non-deductible contribution dollars would go over as a tax-free conversion?



Submitted by David Mertz on Wed, 2022-12-07 21:23

  • Assuming that this is your only traditional IRA, that’s correct.  The taxable and nontaxable amounts are determined on Form 8606.  As long as you have no funds in traditional IRAs at the end of the year, all of your basis in nondeductible traditional IRA contributions will be applied to reduce the taxable amount of the conversion.
  • If you are under age 59½, for 5 years (including the year of the conversion) you’ll need to keep track of the amounts of your taxable and nontaxable conversions in case you take a distribution of taxably-converted amounts that are subject to an early-distribution penalty until the end of the 5-year period has been reached or you reach age 59½.

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