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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76101  
Subject: Re: Roth Conversion Question Date: 12/10/1998 1:45 PM
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Tim writes:

<<A few months back I converted some "old" mutual fund IRA's (one for me, one for my wife) to traditional IRA's with a discount broker, and then switched those to a Roth. My question relates to the conversion.
We established the IRA's probably 12-14 years ago, and over a period about 6 or 7 years we made our $2K contributions 5 times. A couple of those times they were deductable contributions, but a couple of times they weren't.
When I calculate my 1998 taxes, would I have to include THE WHOLE conversion (actually 25% of it for this tax year) as income, or is there some formula I would use to determine the portion that was deductable, and only claim that piece of it?
I've downloaded Pub #590 from the IRS website, but it's "For use in preparing 1997 Returns", so it doesn't mention anything about a Roth.>>


By the time you have to prepare your return, the IRS will undoubtedly have a revised Form 8606 to use for computing the taxable part of a traditional IRA conversion to a Roth IRA and to show you will use a four-year spread of the taxable conversion. The mechanics aside, here's how it will work.

Your old IRA will issue a 1099R showing a distribution as a result of the conversion. The distribution will be reported at market value on the date the money was transferred. From that total you will subtract all nondeductible contributions you made to that IRA. The balance becomes the income that must be reported on your tax return. Divide that number by four, and that's what you report each year for tax-years 1998 though 2001.

I hope you kept a copy of the Form 8606 you were required to file in the years you made those nondeductible contributions. They are the proof you made after-tax contributions to an IRA. Without them, you may have a difficult time proving you made them and could end up paying tax on those deposits again.

Regards…..Pixy
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