Message Font: Serif | Sans-Serif
No. of Recommendations: 1
Last year I made a $2000 contribution to a Roth IRA which I had to recharacterize to a non-deductible
traditional IRA.

<i?With distributions that IRA is now
worth about $1950 (wonderful, huh?).

*** Hopefully, it will make a comeback!=:) Below, you ask the question about taxability. You are taxed on the entire distribution from your IRA,in spite of your losses, less a portion of your basis.

I also have
about $50000 in a deductible IRA. I would like to
convert the $2000 non-deductible IRA to a Roth
this year and make another $2000 contribution to the
new ROTH.

***You may transfer amounts from your regular IRA but you can't specify that the $2000 non-deductible IRA be placed in the new Roth. The amounts you take from your regular IRA are proportionately moved so that a % of the $2000., as it relates to your entire IRA, will be taxable. The calcualtions are made on Form 8606.
If your income falls within the allowable parameters, you may make both the transfer and the new contributions.

Here are my questions:
1. What kind of taxes will I have to pay?

***You'll pay tax at whatever is your marginal rate on
the proportion of your deductible vs non-deductible (basis) contributions. The portion of your distribution, as it relates to basis, will not be taxed.

2. Will it only be on the $2000 non-deductible IRA?

***It will be taxed, rateably, as a percentage of your deductible vs non-deductible contributions.

3. Will it be only on the earnings on that IRA or
nothing at all since I have a loss?

***Unless you transfer 100% of your IRA into a Roth, it will be on the rateable amount explained above.

4. Will my deductilbe IRA have to be included in the calculation?

***Yes, on Form 8606, as explained above.

5. Is it worth it convert to a Roth IRA or just keep
it a traditional IRA ( 10-12 years to go before retirement)?

***Different strokes for different folks. Depends on your income now, what you expect it to be through the years, and the tax (based on current assumptions) bracket you will be in when you retire. I believe
Kaye Thomas has an excellent site that will help you make that decision:

6. Should I just forget the conversion and start a
new ROTH this year?

***Only you can make that decision. You may move as much as you like, $2,000 or the whole $50000., as long as your modified adjusted gross income does not exceed $100,000. The phase-out, in your ability to make fresh contributions to the Roth, is between $95,000 and $110,000 (if you are single) and $150,000 and $160,000 (married filing jointly) It's just that you'll have to pay tax on all but your basis.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.