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In my traditional IRA I have some contributions which were non-deductible. Can I convert those funds over to my Roth IRA without tax consequences or is there an income limitation for doing that? My wife and I file jointly and are under the income limitations for contributing to a Roth, but I thought I heard somewhere that the income limitation for doing a conversion was lower than the contribution limitation.

~Stillwell
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In my traditional IRA I have some contributions which were non-deductible. Can I convert those funds over to my Roth IRA without tax consequences or is there an income limitation for doing that?

No, you can't, and yes, there is, but the income limit for conversions ($100,000) isn't the reason you can't do what you want to do.

A conversion to Roth is a distribution from your traditional IRA. When you have nondeductible (after-tax) money in a traditional IRA, a portion of each distribution is a tax-free return of that after-tax money, and a portion is a taxable distribution of previously untaxed earnings and deductible contributions. The taxable portion is calculated in Part I of Form 8606.

See Publication 590.

Phil
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A conversion to Roth is a distribution from your traditional IRA. When you have nondeductible (after-tax) money in a traditional IRA, a portion of each distribution is a tax-free return of that after-tax money, and a portion is a taxable distribution of previously untaxed earnings and deductible contributions. The taxable portion is calculated in Part I of Form 8606.

Thanks, let me see if I understand. Let's suppose that the IRA is 25% after tax contributions and 75% is before tax contributions and gains. I can't specify to convert just the 25% that has already been taxed so any amount converted is comprised of a 25% non-taxable and a 75% part which is taxed. Is that about right?

~Stillwell
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In my traditional IRA I have some contributions which were non-deductible.

OK.

Can I convert those funds over to my Roth IRA without tax consequences

No. Everything that comes out of your traditional IRA must be prorated between the taxable and non-taxable portions.

or is there an income limitation for doing that?

Yes. To convert money from a traditional IRA to a Roth, you have to have less than $100k in MAGI. That income limitation is scheduled to be lifted in a couple of years (2010, I think), so if you make too much now, you may be able to do a conversion then.

My wife and I file jointly and are under the income limitations for contributing to a Roth, but I thought I heard somewhere that the income limitation for doing a conversion was lower than the contribution limitation.

For a married couple, it is. For a single person, it's the other way around.

--Peter
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Let's suppose that the IRA is 25% after tax contributions and 75% is before tax contributions and gains. I can't specify to convert just the 25% that has already been taxed so any amount converted is comprised of a 25% non-taxable and a 75% part which is taxed. Is that about right?

Yes, plus, it's not just that IRA account. The calculation on the percentage of after tax vs. before tax includes all traditional IRA accounts owned by an individual. Again, see IRS Pub 590 for details.

AJ
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Let's suppose that the IRA is 25% after tax contributions and 75% is before tax contributions and gains. I can't specify to convert just the 25% that has already been taxed so any amount converted is comprised of a 25% non-taxable and a 75% part which is taxed. Is that about right?

It's exactly right.

Phil
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