Hi jbassman,
What might be happening is that the original
contribution to the traditional IRA account provided an income tax deduction.
Regular IRA contributions almost always reduce the income tax in the
year the contribution was made. Thus, when you convert the traditional
IRA to a Roth IRA, it is a taxable event. Here's why: You would not have
received the income tax deduction if you had contributed to a Roth IRA
instead of the traditional IRA.
That said, if you did not receive
a deduction at the time of contribution (this happens if you are higher
income) then your IRA has "basis." However, if the account grew in size, then
the earnings will still be subject to ordinary income rates on the
conversion to the Roth IRA.
Thanks,
Dirk
