IRA Implications

[hstettl]

I have a traditional IRA that I have been contributing to with post-tax money. I now realize I should have been doing this with a Roth IRA but am worried about transferring the money to a Roth IRA because there will be tax implications on it. How do I avoid getting taxed twice on this money?

[MinhT1]

If you convert your Traditional IRA to a Roth IRA, you will not be taxed on the non-deductible contributions you made in the past.

When your Traditional IRA has basis (from the nondeductible contributions) as reported on form 8606, you have to apply a prorated amount of basis to the distributed or converted amount.

Please read this IRS document for more information.

If you haven't filed form 8606 in past years, you can file them now without amending past tax returns.

If you made a nondeductible contribution to your IRA and failed to file form 8606 with your tax return, You can fill out and file this form  now as a standalone form. You do not need to amend your tax return. You can send this form to the IRS at the address where you would file your tax return. This depends on your state of residence.

Please find the address in this IRS document.

If you fail to file form 8606, you will be taxed on the distribution of your nondeductible contribution.

There is a $50 penalty for filing the 8606 late unless you can show reasonable cause.

[fanfare]

the tax will be on the growth over and above your total (non-deducted)  contributions, thus you are not taxed twice.

there is no early withdrawal penalty on a conversion.