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Janicedowden writes:

Badger & Pixl - would both of you please read my inquiry in Retired Fools titled "Converting to Roth IRA", and give me YOUR opinion(s)?

I posted that in this down market, it should be a good idea to convert all down-in-value (worth less than original contribution) after-tax IRA's to a Roth IRA with no current tax outlay.

I received comment that ALL IRA's would have to be combined, and after-tax and pre-tax proportioned, in converting any amount to Roth. The assumption was that a given IRA did not stand alone for conversion purposes.

This seems to relate to your conversation "Combining IRAs". This would seem to be a major discussion point - whether ALL of a person's IRA's (after-tax & pre-tax) have to be lumped together and treated proportionately when amounts are withdrawn and/or converted.

Would appreciate any comments.

A conversion to a Roth IRA is treated as any other distribution from a traditional IRA, which means you would have to pro rate your basis across all your IRA to see how much of your conversion would be taxable. The conversion uses the procedures found starting on page 26 of IRS Publication 590 found at If you want additional assurances my interpretation is not out of line with current thinking, see Kay Thomas's excellent tax site at

Surprisingly, though, you won't find The Badger and I disagreeing on his interpretation of the Tax Code itself. I think his approach is reasonable, albeit highly aggressive given the published IRS guidance. I believe -- and he obviously doesn't -- that using a "specific account identifcation" approach can and almost certainly will be challenged by the IRS in the absence of a PLR allowing it. Someone who does so and then gets challenged may very well find themselves spending literally hundreds (if not thousands given the complexity and value of the conversion) defending an action taken without prior approval through a PLR. Is the tax savings you might enjoy big enough to justify that expense? If so, go for it. If not, don't invite the aggravation. IMHO most of the time the savings just won't be big enough to justify the cost of the defense. It would have to be a really big conversion to produce the desired tax savings (at least enough to pay the cost of defense)to justify it in my mind.


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