2010 conversion-Must allIRA’s be converted at the same time?

I have some traditional IRA’s that were deductible and some that were nondeductible. I would like to convert some, primarily the nondeductibles, but not all, to Roth’s when the income limitation is not a factor in 2010. I have heard that [u]all IRA’s [/u]must be converted at the same time, if this true, where can I find the source of this ruling. I would like to select certain IRA’s that would cause the best results-tax and investment wise, as compared to have a large undesired bulge in my income for the two years following 2010. Any help or suggestions would be appreciated.



You do not have to convert all IRAs to a Roth. However, from a tax standpoint you only have one large IRA. You can convert any part of that one large IRA to a Roth. The cost basis on the amount you convert is the same ratio as the cost basis on your one large IRA, consisting of all the IRAs you own. As an example, suppose I have one IRA that was never deductible for $100,000. My investment choices were so poor that there was no growth. Suppose I also have a $900,000 rollover pre-tax IRA. I decide to convert my $100,000 IRA to a Roth. Since my cost basis in my one tax IRA is 10%, I will be taxed on $90,000 of the $100,000 Roth conversion. This info can be found in IRS Pub. 590, PP 29, 39-40, 62. Perhaps in the 2008 version, they’ll figure out how to get it on one page!



Also keep in mind that you can elect out of not reporting a 2010 conversion and being taxed in the following 2 years. You can convert smaller amounts, and report the conversions for each year including 2010.



Also, note that while you can do multiple conversions in 2010, you election regarding the year(s) the taxable income will be reported must be the same for all your 2010 conversions. That does somewhat limit your flexibility in managing taxable income from the conversions, but you will still retain the recharacterization option.

Recharacterization of a 2010 conversion will not be as transparent tax wise as in prior years because the deadline is 10/15/2011 and you will still not fully know your 2011 tax situation and will really be in the dark for 2012.



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