The more I read (Roth conversion)…..more confused I get
Please tell me if I am correct….
Husband had an old 401K which he rolled over to traditional IRA at TIAA brokerage, now worth $36,000. We are planning on contributing to a spousal IRA for him for 2019 and 2020 (total $14,000) before July 15, then converting everything into a Roth immediately after the contributions are accepted.
It does not matter if we mix pre-tax and post-tax in the same account, correct? There will be no tax consequences i.e. pro-rata as we are converting the entire deductible IRA, am I correct? Is there any value to doing this in 2 steps instead i.e. converting the old IRA first, then contributing to and converting the new amounts?
Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2020-04-07 21:27
All his non Roth IRAs are treated as one combined account for tax purposes. If a non deductible TIRA contribution is made it does not matter which account receives the contribution. Not clear if he 2019 contribution will or can be deducted on the 2019 return or not. If not deducted, then Form 8606 must be filed for him to report the 2019 non deductible contribution. Same for 2020 contribution. No matter what amount is converted this year, the taxable amount is calculated on Form 8606. For example, if his total pre tax TIRA amount is 36,000 and the 14,000 are non deductible contributions, then 72% of any amount converted is taxable. There is no advantage to converting either IRA account first, since both accounts are treated as combined on Form 8606.
Permalink Submitted by Eleanor Duduch on Tue, 2020-04-07 23:45
Thank you. Yes, both 2019 and 2020 are non deductible. I will not incur pro rata for 2019 though, as the conversions are not being completed until 2020, correct?
Permalink Submitted by Alan - IRA critic on Wed, 2020-04-08 01:00
Correct. Pro rating only occurs when distributions are made. A conversion starts with a distribution.