Aggregation of IRAs for Roth Conversion

[smm]

My understanding is that if you have multiple IRAs - some with pre tax, some with after-tax, and some with both, you cannot pick and choose which ones to convert to a roth, but have to aggregate them all to determine the taxable/non-taxable portion of the amount that is being converted. In other words, if I have 3 IRAs - one with 10,000 after tax contributions and 2,000 earnings and one with 8000 pre tax and I want to convert the 10,000 after tax to a roth, then I would pay tax on 5000 on the conversion. Is that correct? If so, where is the authority for this in the code and regs. Again, if correct, when is the total value of the IRAs determined? At the end of the year, time of conversin, etc. Thanks.

[mbozek]

My understanding is that if you have multiple IRAs - some with pre tax, some with after-tax, and some with both, you cannot pick and choose which ones to convert to a roth, but have to aggregate them all to determine the taxable/non-taxable portion of the amount that is being converted. In other words, if I have 3 IRAs - one with 10,000 after tax contributions and 2,000 earnings and one with 8000 pre tax and I want to convert the 10,000 after tax to a roth, then I would pay tax on 5000 on the conversion. Is that correct? If so, where is the authority for this in the code and regs. Again, if correct, when is the total value of the IRAs determined? At the end of the year, time of conversin, etc. Thanks.

See IRS Pub 590 P 28 and Worksheet 1-5, P39-42.

[Guest redsands]

You should be keeping track of your IRA basis on form 8606 every year you file your taxes. The 8606 is the "calculator" so to speak and will give you a proration to your conversion. The IRS doesn't care if you have 500 IRA's. Let's say you have $2K in basis in your IRA's (as noted in your 8606) and the total of ALL of your IRA's (including SEP's) is $10,000. Than 80% of the conversion is taxable. If you want to convert say 1/2 ($5K) than $4K will be taxable at your income tax rate.

What we have done for some clients is roll some of their IRA into their 401k and convert the remainder. (Obviously, don't roll more into the 401k than basis.)

I can't answer how much tax you pay with your figures because I don't know your tax rate.