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Subject:  Re: Regular IRA xfer to Roth IRA Date:  8/20/1997  10:14 AM
Author:  TMFTaxes Number:  197 of 127613

<<Is it possible to transfer the non-deductible portion of
a regular IRA to the new Roth (IRA Plus) type IRA? The
thought is that the non-deductible portion would have no
tax to be paid when transferring to the Roth IRA. Also,
what should be done concerning the 8086 non-deductible IRA tax form? This would greatly reduce the paper work necessary in keeping track of the taxable and non-taxable parts of non-deductible IRAs if all non-deductible money
was transferred to the new Roth IRA.>>

Yo!! Rusty!!

The transfer would be an "all or nothing" situation. You are NOT able to take an IRA, carve out the previous non-deductible contributions, and move them only into the Roth IRA. You have to transfer the whole ball of wax.

Even though this is the case, folks who have previously made nondeductible contributions to a pre-Roth IRA should give consideration to rolling that IRA over to the new Roth IRAs, assuming that they otherwise qualify to do so. If they do, they'll be taxed on ONLY the amounts earned in the IRA, and any deductible contributions previously made, but the amount of the non-deductible contributions will be transferred free from tax.

As far as the 8086 form, you'll want to hang on to it for a while. At least for 5 years after the transfer. I'm advising my clients to keep their "final" 8086 forms available forever, since we never know what the tax law may bring in the future, and it may be important (many years from now) to be able to determine the "basis" in the prior IRA.

But as you note, the beauty of the Roth IRA is that ALL contributions will be deemed to be non-deductible. The problem is that you'll still need to know the "basis" in your Roth IRA in case you have to make a non-qualifying distribution subject to tax. So my guess is that Form 8086 will be expanded to include the basis for Roth IRAs. Even if there is no new form to track the Roth basis, I will track it internally for my clients.

TMF Taxes
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