Tax consequences of Roth IRA conversion
What is the calculation used when an individual converts a portion of an IRA that has both had pre-tax and after-tax contributions? Does it relate to the total value of the portfolio and the % of contributions that were pre-tax vs. after-tax, ie. if current value of acct. is $100,000 and pre-tax contributions represnt 20% of total contributions
is only 20% of conversion a taxable event? What about the tax-sheltered growth of that
20%? Do you need to track cost basis of each asset purvhased with pre-tax vs. after-tax purchases.
Thanks
Permalink Submitted by mk foss on Tue, 2013-01-22 18:59
When an individual has IRA basis and does a Roth conversion all IRAs are taken into account to determine how much of the basis has been converted and is tax free. If you put your numbers on Form 8606 you can see how it works. The fraction of basis recovered is determined by taking the total basis as the numerator and the denominator is the FMV of all IRAs at 12/31 of the conversion year plus the value of all conversions and distributions made.You do not have to track cost basis of any assets because the only important factors are the FMV figures and the actual after tax money as reflected in the Forms 8606 previously filed.