Re: Yes. When determining the taxable and nontaxa...
Level 15

Retirement tax questions

@Intchk wrote:

Using form 8606 I had contributed to non-deductible IRA  prior to availability of ROTH IRA. I would like to convert to ROTH IRA. Since I have another traditional IRA( this account deductible amount), if I convert this deductible traditional IRA to ROTH IRA  during this year 4th quarter, do I still need to do pro-rata calculation on non-deductible IRA if I convert this non-deductible  to ROTH in 4th quarter as well ? Was thinking since I converted my only taxable IRA to ROTH IRA, no need to pro-rata and pay no tax this year for this non-deductible amount.



The answer to your question is no - the basis is always prorated over the aggregate value of all existing Traditional, SEP and SIMPLE IRA accounts.


There is no such things as a "taxable" or "non-taxable" IRA - your IRA consists of the aggregate value of all IRA accounts.


You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).


For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio) , with the remaining $54K of basis staying in the IRA for future distributions. As long as there is any money in the IRA, there will be some basis.


TurboTax will ask for your non-deductible "basis" and then the *Total Value* of *all* Traditional IRA, SEP and SIMPLE accounts as of Dec 31, of the tax year. That is so the prorating of the basis can be properly proportioned between the current years distribution and the remaining IRA value. That is done on the 8606 form.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
This widget could not be displayed.
Privacy Settings