Is nondeductible IRA conversion to Roth IRA taxable?

[Guest maryu]

In 1998 I converted a $4000 Non-deductible IRA to a Roth IRA & paid tax on the full amount. This was my only IRA at the time. Looking through this site it seems that I should only have paid tax on the earnings. Is this correct? If so, is there anyway to get this back or is 4 years too long?

[BPickerCPA]

There is not enough info to determine the taxability of your conversion. When you say you converted a $4,000 non-deductible IRA, was that your only IRA? You have to use form 8606 to determine how much of the conversion was taxable, and you have to include all of your IRAs in the calculation.

However, the statute of limitations to receive a refund of overpaid 1998 income tax has expired. So that part is moot.

However, if you still have traditional IRAs, you still need to do the calculation to see how much basis you still have in those IRAs.

[Guest tcd]

Yes, you should have only paid tax on the difference between the Fair Market Value at conversion of your IRA and $4000.

I assume you did not spread the conversion over 4 years.

When did you file your 1998 tax return? You can amend 3 years from filing if you extended (must have extended your 1998 return two times to still be eligible to amend).

You may want to check the statute of limitations for filing amended tax returns in your state. In California the statute is 4 years, so a taxpayer could still file an amended state tax return.

[Guest maryu]

Thanks - that's what I was afraid of.

[John G]

Maryu, it is unfortunate that you paid taxes on the conversion beyond what you owed. For other readers of this message board, one lesson to be learned is that conversions (even relatively small ones) should be done with the advice of a tax preparer or accountant as the eligibity, procedures and tax consequences are complicated. Sadly, we see way too many posts of conversions that were not executed properly or done unwisely.