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my father in law just informed me that he has about 10,000 of non deductable ira money in his reqular deductable ira that he put in there years ago (BR) before roth how can he seperate this money and he wants to know if he can roll the 10,000 of non deductable money into a roth.
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He can roll the whole kit and kaboodle into a Roth, leave it all there, or move some of it into a Roth. If he's going to convert it into a Roth, it's best to move the non-deductible money into the Roth first, because that will serve to reduce the tax burden. It will reduce the amount of money that's considered income. In my case, I moved around $20K into a Roth, and would have had to pay taxes on all of that. However, because I had made around $3600 in non-deductible contributions, that served to reduce my tax basis to around $16K.
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He can roll the whole kit and kaboodle into a Roth, leave it all there, or move some of it into a
Roth. If he's going to convert it into a Roth, it's best to move the non-deductible money into the
Roth first, because that will serve to reduce the tax burden. It will reduce the amount of money
that's considered income. In my case, I moved around $20K into a Roth, and would have had to
pay taxes on all of that. However, because I had made around $3600 in non-deductible
contributions, that served to reduce my tax basis to around $16K.


I think what you propose cannot be done. It is the percentage of your basis that determines what portion of the conversion will be taxable. For instance if you have a 20k IRA with 10K basis--Your basis % is 50%(10k/20k=50%) of the value of the IRA so when you do a partial conversion no matter how big or small-- 50% of the amount converted to a Roth will be considered as a taxable event. I know I didn't do a good job of "splaining" but the heavy weights of the board will clean up my mess (I hope)
Bryan
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You could be right. I didn't do the calculations, I just let TurboTax handle it. However, it did have that effect.
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Greetings, Billboss, and welcome. You asked:

<<my father in law just informed me that he has about 10,000 of non deductable ira money in his reqular deductable ira that he put in there years ago (BR) before roth how can he seperate this money and he wants to know if he can roll the 10,000 of non deductable money into a roth.>>

Sorry, but he can't do that. Traditional IRAs are aggregated for withdrawal purposes. When partial withdrawals are made, part of the money will be taxed and part won't depending on the ratio of deductible and nondeductible monies in all the IRAs to the market value of those IRAs.

Example: You have an IRA worth $15K funded by $10K of nondeductible contributions and another worth $15K funded by $10K of deductible contributions. You convert $10K of the first account to a Roth. For tax purposes, the IRS will look at the value of all your IRAs ($30K) and the total of your nondeductible contributions to those IRA ($10K). Divide $10K by $30K for the ratio of any withdrawal or conversion that won't be taxed. That's 33.3%. The rest gets taxed. You convert $10K, so $3.3K won't be taxed and $6.7K will be.

See IRS Publication 590, Individual Retirement Arrangements, for details. You can download that pub at www.irs.gov.

Regards..Pixy
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