Convert After-tax To Roth- Is this article correct

[jane123]

Is this article correct? http://www.foxnews.com/story/0,2933,125994,00.html

I always thought different and I think I read different on this board and some reference material- in that the conversion would have to include some of the after-tax and some of the pre-tax

Part of what she says is

Now here's where things get interesting. Consider rolling your after-tax contributions into a separate traditional IRA. This is a relatively new twist and is only possible because the 2001 Tax Act introduced a provision that allows rollovers of after-tax contributions.

Since your income will clearly be below the $100,000 limit for Roth conversions, once this money hits IRA #2, you can immediately convert it to a Roth IRA. From then on, any gains the account generates will be tax-free. Furthermore, unlike the owner of a traditional IRA, the owner of a Roth IRA never has to take any withdrawals. (With a traditional IRA, you must begin withdrawals the year you reach age 70 1/2.) As I've explained here before, when you convert money in a traditional IRA to a Roth, you have to pay income tax on the amount that has not yet been taxed.

But here's the beauty of the strategy I'm suggesting: By definition, you already paid income tax on your after-tax contributions! (Hang in here with me.) By detaching the earnings from these contributions (and sending these to IRA #1), the only assets in IRA #2 are those which have already been taxed. So the conversion costs you nothing!

You end up with a traditional IRA (IRA #1) containing all of your pre-tax money (both contributions and earnings) and a Roth IRA (IRA #2) with after-tax money that can benefit from tax-free growth for as long as it remains in the Roth.

[wmyer]

Doesn't sound correct at all! However, if someone doesn't have any IRA currently, she could roll over her pre-1987 post tax principal and convert it to a ROTH IRA without being subject to any tax.

[John G]

The exact procedure that this writer proposes is not very clear - rollover from what, for example? It sounds to me like bogus advice based upon wishful thinking.

The IRS conversion rules are clear. The taxable amount in a conversion is based upon the pooling of ALL IRAs regardless of their location and when they were started. The calculation is done as if you have one single super sized IRA.