Partial Conversions

[John G]

The first sentence of BPicker might be confusing. You can not selectively convert just the non-deductible amounts of any IRA. Lots of folks think they see a loophole to avoid Roth conversion taxes by converting just the previously taxed component. Not legal. Doesn't work. Forget about it.

Another common confusion is that you can do all these calculations based upon one IRA account. Not true. As BPicker notes, you aggregate ALL the various IRA accounts (brokerage, mutual fund, band, etc.) for one person into one grand total.

On area where couples can get clever is to convert the assets of the couple with the highest percent of non-deductible assets. The IRA tax calculations are seperate for each spouse. Such cleverness could cause later problems in a divorce.

[Guest GES]

If you have a traditional IRA with deductible AND non-deductible contributions, can you convert the non-deductible contribution amount to a Roth IRA? Any earnings from the non-dectible contributions would remain with the traditional IRA. I would think so as tax was already paid on the contributions.

Also, could one convert 1/4 of a traditional IRA to a Roth each year for 4 years to spread out the tax burden?

[BPickerCPA]

You cannot only convert the non deductible portion of a traditional IRA. Just like any other distribution, you need form 8606 to compute the taxable portion. All IRAs, even if you segregated the non deductible contributions are deemed to be one. So if you contributed $20K over 10 years, non deductible, and you $100K in all of your IRAs, then 1/5 of each withdrawal or Roth conversion, will be NON taxable, and the rest will be taxable.

You can do partial conversions in any manner you want to spread the tax burden out, as long as you qualify each year that you make a conversion.