I converted remaining $ in my deductible IRA to a Roth. What tax liability would I have if I converted a non deduct IRA that is showing a loss if also done this year?

[macuser_22 · Accepted solution]

There is no such thing as a "deducible" IRA or a "non-deductible" IRA.  The non-deductible "basis" in an IRA applies to the aggregate total of all IRA accounts that you own.

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 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.

[macuser_22]

When you take a distribution from a Traditional IRA, whether you convert to a Roth or not, the follow-up questions will ask for any non-deductible basis and the year end value of all Traditional, SEP and SIMPLE IRA account that you own.   Those figures will be used to calculate the taxable and non-taxable amount of the years total distributions on a 8606 form lines 6-15 (and 16-18 if a Roth conversion is involved).

[susan_means]

So I'll have to wait to do my 2019 taxes before I can figure out if there will be a tax liability on the non deductible portion converted?  Thanks for your answer by the way.

[macuser_22]

2019?   If you did a conversion in 2018 then you will receive a 2018 1099-R to report it on your 2018 tax return in 2019 that you file now or before April 15, 2019.

[susan_means]

Thanks for your answer Macuser!  In order to avoid paying any taxes on the remaining IRA funds, even though there is a loss in the account, I would have to wait until next year (2020) to convert when that will be the only remaining traditional IRA money left?

[susan_means]

In other words, in 2020 I will only have after tax IRA contributions left that may or may not have shown a profit.  

[macuser_22]

As I said above, the after-tax "basis" is always pro-rated over the current years total distributions/conversions and the total renaming value of the IRA.    Only when the amount of after-tax basis exceeds the value of the IRA would the distribution be tax free and the yeer end value of the IRA becomes zero, would it be a loss.   Unfortunately with the new tax law, that loss is no longer deducible.    The year that you take the distribution/conversion is not material so if yiu do that in 2019 then it would be reported next year on yiur 2019 tax return filed in 2020 if that is what you mean.

[dmertz]

Because all of your traditional IRAs are treated as a single account for tax purposes, unless your investments in traditional IRAs significantly lose value, *every* distribution or Roth conversion will be part taxable and part nontaxable.  No matter when you take the distributions, your basis will be fully distributed only when you no longer have any money in traditional IRAs at year end.  It doesn't matter which account you make the distribution or conversion from, the taxable and nontaxable proportions of the distribution will be the same.