Convert IRA basis only to Roth IRA?

[Guest richard black]

Does anybody know how the IRS treats converion of the basis from a regular IRA to a Roth IRA. Assume 20% of my IRA is listed as an already taxed basis.

Can I take that basis out directly? Or is there a FIFO, LIFO, lind of problem?

[Guest danmar]

Non-deductible IRA contributions are blended in your *Total* IRA assets invested in all the IRAs you may own, including SEP and SIMPLE IRAs. Any distribution or Roth conversion then removes a proportional amount of non-deductible basis. So, if 20% of your total IRA assets represents basis, 20% of whatever you distribute or convert will be a non-taxable return of basis and 80% will be taxable. See IRS form 8606 to report the transaction to the IRS and for complete instructions.

[Guest gregfu]

I converted my Traditional IRA to a Roth IRA in April of 1998. One month prior to that I made a $2000 contribution for the tax year 1998. Since it looks like that contribution on what at the time was a "Traditional IRA" will be non-deductible, do I report it as such to the IRS and reduct the tax basis on my Roth conversion by $2000????

[Kathy]

I'd have to think about this one for a while first and you'd have to talk to your IRA trustee but - you might be able to "recharacterize" the 1998 $2,000 traditional IRA contribution as a Roth IRA contribution and treat the rest as a conversion - the benefit of the recharacterization, if it can be done at all, is that the earnings relating to the $2,000 contribution are also recharacterized - that is, treated as if they were earned by the Roth IRA rather than the traditional. Benefit of that is the earnings are not taxable to you as part of the conversion. It might be worth checking it out. Otherwise, if you treat the whole amount as a conversion, the $2,000 you contributed in 1998 for 1998 should be reported on a Form 8606 as nondeductible and then would create a basis in the IRA converted. You won't have to pay taxes on that $2,000 either way. Hope this helps.

[Guest fins]

I set-up a traditional non-deductible IRA in 1998 ($2000). I converted it to a Roth IRA. The things is the conversion value was only $1500.

Can I take a loss for the difference or at least offset the $500 with my IRA conversions from prior years that had zero basis?