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Author: DrBear One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76115  
Subject: Partial Transfer to Roth Date: 3/2/1998 2:06 PM
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Pixy,

Okay, I've tried to be the dutiful student and have read IRS Pubs 590 (IRAs) and 553 (1997 Tax Law Changes) until beads of blood appeared on my forehead, but I can't figure out if I can do what I'd like to do.

Situation: Two IRA accounts.
IRA#1: IRA-Rollover made up exclusively of funds and earnings from a prior employer's 401k plan.
IRA#2: Traditional IRA funded with both deductible and non-deductible contributions.
Ideally I'd like to isolate IRA#1 and convert only IRA#2 to a Roth, as I don't have the upfront cash to pay taxes on both.

Example (amounts are for example only):
IRA#1 = $40,000 - non-taxed
IRA#2 = $20,000 - $8,000 already taxed.

What I want to do:
Transfer $20,000 from IRA#2 and pay tax on additional income of $12,000 spread over 4 years.

What I think the IRS wants me to do:
Transfer $20,000 from IRA#2, but pay additional tax on income of $17,333. Why? Pro-rated transfer of $20,000 multiplied by total value of all non-taxed IRA holdings (52K/60K).

Question #1: Are my analysis and conclusions correct?

Question #2: I'm pretty sure I could do what I want to do if I took my IRA-Rollover and (groan) rolled it into my current employer's 401k. True? Follow-up question: What if I did this in 1999 or later? (I might, if I knew I'd be leaving my current employer). Could I file amended returns for 1998 to pay less tax?

Question #3: Is there any other way to isolate IRA#1 from the Roth transfer calculation? I've dutifully kept the IRA#1 money unsullied by outside contributions, but I'd prefer not to roll it into my current 401k due to limited investment choices.
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