Conversion Tax Question

[Guest terbo]

I currently have 2 traditional IRA's that are in the same account with my local credit union. One I deducted and one I did not deduct. I'm planning to convert these to a Roth before the end of the year but I don't want to be liable for the taxes on the entire total, only the taxes on the deducted portion. How do I do this? Any help would be much appreciated.

[BPickerCPA]

You have filed form 8606 with your tax return for the year or years that you made non-deductible IRA contributions. When you do the conversion, you will file form 8606 (a different portion of the form) which will make sure (if filled out correctly) that you do not pay tax on the amount of non-deductible IRA.

[Guest terbo]

Thanks for the answer. However, I bought these IRA's a few years ago (right after I left college) and I don't think I filled out form 8606 when I submitted my taxes... Is there anything I can do or am I stuck paying taxes on the entire sum?

[Mary Kay Foss]

There are penalties for not filing Form 8606 and penalties for overstating basis in an IRA so it's important that you deal with this. Form 8606 is one that can be filed separately. Obtain copies of the form for every year that you made a nondeductible contribution. After completing the forms, send them all in together with a note asking that any penalties be waived because you just became aware of the requirement.

If you do this within a month or so, the basis for the nondeductible IRAs will be on file with the IRS.

The calculation that Barry mentioned treats all IRAs as coming out of one pot. Part of the amount converted to Roth will be from the deductible IRAs and part from the nondeductible. There isn't any way to designate that the conversion come from just once source or another.

Good luck!