Roth IRA conversion of non-deductible contributions from "Old" IRA

Forum|Forum|3 years ago
December 12, 2022
3 replies
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I have a traditional IRA with non-deductible contributions that were made prior to 2004. I would like to transfer the "basis" of the remaining non-deductible contributions into a Roth IRA.

Most of the questions here involve "back-door" IRAs with same tax year non-deductible contributions. Since my "traditional" IRA has no current year contributions, how do I enter the conversion? I tried using both "current year Traditional and Roth" checkmarks, but the conversion shows up as excess contribution with penalties, since the amount is more than $7000 and I have no "earned income".

NCperson

Level 15

@Gary_Reno - are you using the desktop version and I assume you are just playing "what if" scenarios....

in the interview, be sure that Box 7 is a 7.

then on the next screen the source is probably "none of the above"

on the next screen, presumably you did NOT inherit this IRA

on the next screen, you moved the money to another retirement account, you did a combination of rollover, converting or cashing out the money, and then you have an input box indicating how much your coverted to a Roth IRA.

does that fix it?

fanfare

Level 15

@Gary_Reno if you wish to convert tax free to Roth, your entire value of all your IRAs must be no more than your basis which is the non-deductible part,

Otherwise it cannot be 100% tax free because a Traditional IRA distribution or conversion always has a basis fractional part and a taxable fractional part as calculated on Form 8606.

Opus 17

Level 15

"I would like to transfer the "basis" of the remaining non-deductible contributions into a Roth IRA. "

You can't do that.

Suppose your current IRA balance is $100,000 with $10,000 non-deductible basis (10%). You can't only convert the non-deductible basis to a Roth. If you convert 10% of your IRA to a Roth ($10,000), 10% will be non-taxable ($1,000) and the rest will be taxable ($9,000), leaving your old IRA with a $90,000 value and a $9,000 non-deductible basis, maintaining the 10%.

If you want to convert the entire IRA to a Roth, that will clear the non-deductible basis and the entire remaining portion will be a taxable conversion.