conversion from non-deductible to Roth IRA
How to calculate the taxable amount in a conversion from non-deductible traditional IRA to a Roth IRA? I am given to understand that it is more than just the growth part of the original deposit or the principle. Is that true? Since the original deposit was after tax money why should that be in the picture? Thanks for your help….Mo Vidwans
Permalink Submitted by Alan - IRA critic on Wed, 2019-10-09 01:37
You can have as many IRA accounts as you wish, but they are all treated as one combined account for tax purposes. Therefore, it makes no difference which account receives your non deductible contribution or which account funds the conversion distribution. The total of your non deductible contributions are reported on Form 8606 for each year you make such a contribution. The 8606 also calculates the taxable amount of the conversion using a ratio of the pre tax balance to the total adjusted balance of all IRA accounts at year end. You should download an 8606 and work through an example to see how this comes together.