IRA conversion to Roth taxable amounts

Married husband age 71 will be in 22% tax bracket in 2018 has 3 non-deductible traditional IRA’s cumulative cost (ie amount contributed over the years)
about $ 100,000 market value $300,000 as of Nov 30, 2018. Wants to convert before 12/31/18, from $7,000 to $ 10,000 from a non-deductible traditional IRA with a cumulative cost (basis) of $10,000 and about $30,000 value ( the IRA investment is in a CD).

1. Tax rate this year will be 22%. Therefore what does he pay tax on if he converts $10,000; the $10,000 cost basis of his non-deductible traditional IRA ? So is the tax $10,000 x 22%. It is important to know because if the conversion is taxable at more than $10,000 it will put his taxable income over the 22% tax bracket
2. Or is the computation of the taxable amount on the Roth conversion different than above
3. If the best $ answer to convert is different to keep the taxable amount after conversion no more than $10,000 to
not exceed the conversion tax at the 22% rate, let me know. At this time
based on the projections received he can have additional taxable income of from $7,000 to $ 10,000 and not
go over the 22% tax bracket.
4. Or is the taxable amount computed as ( $7000 to $ 10,000 whichever he decides) divided by $100,000 times whatever amount is converted. Or is there another formula to compute the taxable amount of this traditional IRA to Roth IRA conversion.
5. If the answer requires to take some money ( but not all of it) from one of the 3 available IRA CD’s is that allowed.
That is if the answer is to convert $ 8,500 and one of the 3 IRA’s has $ 25,000 is that acceptable to convert a portion of a traditional IRA to a Roth with no problems



  • The taxable portion of a conversion is calculated on Form 8606. All non Roth IRAs are treated as one combined account for tax purposes. Further, if taxpayer is 71 he must complete his 2018 RMD before converting anything. Form 8606 will then combine the RMD with the Roth conversion and each will have the same taxable %.
  • Example:  Since the last 8606 filed will have a figure of 100k on line 14 (IRA basis), this amount of basis will be pro rated with the adjusted year end value of all IRAs. The RMD will be roughly 11,000, so assume that the 11,000 RMD plus a conversion of 9,000 reduces the 2018 year end balance of the IRA to 280,000. The year end balance adjusted for distributions is then 300,000 of which 100,000 is the basis (33.33%). The 8606 will compute that 2/3 of the RMD and 2/3 of the conversion are taxable. The total taxable distributions for the year will be 13,334 and non taxable 6,666.  The remaining basis on line 14 of the 8606 will be reduced to 93,334 carried to 2019 since 6,666 was “recovered” by these distributions.
  • The pro rata treatment of Form 8606 causes the IRA account which funds the distributions to be immaterial. Basis is not locked to the IRA that received the non deductible contributions. The basis floats over all the IRAs. Some banks will allow an RMD to be split out from a CD without early withdrawal, but not conversions, so the RMD would probably be taken from one of these, and the conversion from one with the lowest early distribution penalty and/or lowest APY. RMDs and conversions from bank CD IRAs are awkward because CD early withdrawal penalties enter into the mix.
  • Since the basis is pro rated, there is never a case where a converted amount would have a higher taxable amount than the amount converted. In this case it would be about 2/3 of the amount converted.
  • I recommend downloading Form 8606 from the IRS site and working through the numbers – or use a tax program which will ask you the questions needed to produce the form. 


Seems from your explanations the law for distributions computes the taxable or non-taxable amounts in the aggregate, based on your totals of all IRA’s not from pulling funds out of a particular IRA as my example indicated.Additionally seems when taking $ from IRA’s you have to compute RMD or other distributions separately from IRA’s than from 401K or 403b.  Correct?Also are there any requirements that a specific type of  investment in the IRA( CD’s, stocks, bonds, annuity) or where the IRA is held (bank, broker, insurance company), requires separate computations for RMD or any funds taken from these IRA’s, 401k, 403b 



  • Yes, a distribution’s taxable amount will be the same regardless of which IRA account received non deductible contribution or which IRA account issued the distribution. Form 8606 treats them all as a single combined account. The form calculates the non taxable portion of the distribution, and then subtracts that from the total to arrive at the taxable amount.
  • IRA RMDs can be satisfied in any combination with other non inherited IRAs, and 403b RMDs satisfied with other 403b plans. All other accounts such as 401k’s must satisfy the RMD for each account individually. The first dollars withdrawn are deemed to apply to the RMD, therefore the RMD must be completed before converting or rolling over funds to another account.
  • The type of investment held does not affect these RMDs rules however some investments may not be as liquid as others (eg CDs or real estate held in self directed IRAs).


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