After tax money into Roth

[Guest GPJoe]

Hi!

I started a Traditional IRA before the amount contributed was tax deductible. From 1978 to 1986 I made contributions on which I paid taxes on. From 1987 to 2004 I made contributions to this account that were tax deductible.

In April 2009 I opened a Roth and contributed a portion of my Traditional IRA to my Roth. I have calculated that the amount I paid taxes on was 3% of the total value as of April 2009.

Supposing the amount I moved to the Roth was 100,000.00. Would 97,000.00 be taxable and the 3,00.00 non taxable?

Thanks, Joe

[GMK]

Quick answer:

Consider the contributions you made before 1987 separately from those you made after 1986.

For the part you contributed before 1987, if you roll this part to your Roth, you will not owe taxes on the basis, which is the amount you contributed before 1987 and already paid taxes on. You will owe taxes on the earnings on those contributions, but not on the contributions themselves.

Contributions made after 1986 are looked at differently (but it doesn't matter in your case). Distributions of amounts contributed after 1986 are considered to be made up of proportional amounts of your pre-tax and after-tax contributions (and their earnings), but in your case your post-1986 contributions were all pre-tax. So, any amount you roll over to your Roth from your post-1986 contributions and their earnings is taxable.

Consult your financial or tax advisor before doing any rollover.

[Guest GPJoe]

Quick answer:

Consider the contributions you made before 1987 separately from those you made after 1986.

For the part you contributed before 1987, if you roll this part to your Roth, you will not owe taxes on the basis, which is the amount you contributed before 1987 and already paid taxes on. You will owe taxes on the earnings on those contributions, but not on the contributions themselves.

Contributions made after 1986 are looked at differently (but it doesn't matter in your case). Distributions of amounts contributed after 1986 are considered to be made up of proportional amounts of your pre-tax and after-tax contributions (and their earnings), but in your case your post-1986 contributions were all pre-tax. So, any amount you roll over to your Roth from your post-1986 contributions and their earnings is taxable.

Consult your financial or tax advisor before doing any rollover.

Thanks for your reply.

I think the anount I contributed before 1987 was @ 15,000.00. Since I did a partial move fom my Traditional to my Roth do I need to prorate the 15,000.00 or is it 'first in - first out'?

[Guest GPJoe]

Thanks for your reply.

I think the anount I contributed before 1987 was @ 15,000.00. Since I did a partial move fom my Traditional to my Roth do I need to prorate the 15,000.00 or is it 'first in - first out'?

[GMK]

You can count all of the $15,000 or so (from after-tax contributions before 1987) first in the transfer to the Roth, and this part is tax free. Then the rest of the transfer amount is taxable.

[Guest GPJoe]

Thanks for your reply. It kinda a bummer the earnings on the 15,000.00 aren't non taxable.

[GMK]

You won't get an argument from me on that. There's something attractive about tax free earnings.

Some on these boards point out that there have to be earnings before there's any attraction to paying the taxes now. And earnings were unimpressive in the last decade. But past performance is no guarantee of future results, so you and I keep putting money into Roths.