Converting Non-Deductible IRA’s to Roth

If a client has both deductible and non-deductible IRA’s, is it possible to roll only the deductible IRA into an employer sponsored qualified plan, then convert remaining Non-deductible IRA to a Roth (in 2010), thereby avoiding the requirement to convert pro-rata amounts of deductible and non-deductible IRA’s?



Yes. The deductible contributions, plus earnings would be rolled over to the qualified plan, so as to satisfy that objective.

Of course, the plan must be designed to accept rollovers from the IRA, otherwise the rollover would not be permitted. Since rollovers from qualified plans can only include pre-tax amounts, then- by default- the remaining balance will be after-tax.

Denise



The employer plan may opt to not accept incoming rollovers from contributary IRA accounts out of concern for accepting non deductible amounts. Some plans address this by only accepting rollovers from conduit IRAs created from prior employer plan transfers. While that still does not fully protect them, it does reduce their chances of getting after tax amounts since after tax amounts in an employer plan can only be rolled over to an IRA since 2001.

However, even if the current plan accepts an incoming IRA rollover, the remaining IRA continues generate earnings, so that whenever a subsequent Roth conversion is processed, part of it will still be taxable with the taxable amount calculated on Form 8606.



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