Possible to move non-deductable IRA $$ to Roth?

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Possible to move non-deductable IRA $$ to Roth?

Postby Cut-Throat » Sun Mar 24, 2013 1:27 pm

Over the last couple of decades I often contributed non-deductible funds to my IRA. Is there a provision that allows the movement of these funds to a Roth without paying taxes? (I have already paid income taxes on these funds)
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Re: Possible to move non-deductable IRA $$ to Roth?

Postby livesoft » Sun Mar 24, 2013 1:34 pm

No. You can convert to a Roth IRA, but you will have to pay taxes on the parts that you have not paid taxes on before. There is no way to move only the already-taxed parts.

And your tax guy has been submitting Form 8606 all these years so that the IRS knows about the non-deductible already-taxed parts?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Possible to move non-deductable IRA $$ to Roth?

Postby Cut-Throat » Sun Mar 24, 2013 1:41 pm

livesoft wrote:No. You can convert to a Roth IRA, but you will have to pay taxes on the parts that you have not paid taxes on before. There is no way to move only the already-taxed parts.

And your tax guy has been submitting Form 8606 all these years so that the IRS knows about the non-deductible already-taxed parts?


Yup, and I am glad I did not have to research all this crap, when I was working.

Does Turbo Tax tell you to do this ?
Last edited by Cut-Throat on Sun Mar 24, 2013 2:11 pm, edited 1 time in total.
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Re: Possible to move non-deductable IRA $$ to Roth?

Postby Geologist » Sun Mar 24, 2013 1:48 pm

To be a little more specific on taxes (from the wiki):

"If you have non-deductible contributions in your IRA, you do not pay tax on the amount of non-deductible contributions. If you make a partial conversion, you must prorate your deductible and non-deductible contributions to all IRAs (including SEP and SIMPLE IRAs) as of December 31 of the year you convert."

Note that this proration covers all your non-Roth IRA's. You can't segregate non-deductible contributions (without earnings) and convert that.
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Re: Possible to move non-deductable IRA $$ to Roth?

Postby Bill M » Sun Mar 24, 2013 4:10 pm

If you had a 401(k) where you worked, there may be another option. You know the basis -- the amount of after-tax contribution you have made. Move the pre-tax portion (current balance less the basis) into the 401k (some 401k plans allow such transfers, and some 401k plans allow such transfers even after your are no longer an employee). Then convert the rest. This works because the rules for 401k transfers say that you move the pre-tax portion first, not pro-rated like withdrawals would be.
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