Your Tax Questions Answered
IRA Conversion
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
April 27, 2009
QUESTION: I have a traditional IRA funded with nondeductible contributions. I've been avoiding converting to a Roth IRA because of the tax on earnings. With much of the earnings eliminated by current market conditions, would this be an opportune time for the conversion?--RLA
KEVIN ANSWERS: Lots of advisers see a silver lining in the losses...you can convert at a lower cost.
Just remember that when converting to a Roth IRA, you have to take all your traditional IRAs into account. You can't just convert one funded with nondeductible contributions, for example. The amount taxable on the conversion is based on the ratio of nondeductible contributions to the total balance in all your accounts. If you have $10,000 in nondeductible contributions, for example, and the total balance is $12,000, 83% of any conversion would be tax free. If the account balance was $20,000 last year, a conversion at that time would have reduced the tax-free portion of any conversion to 50%.
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Reader Comments (4)
Posted by: Ray N at 12/08/2009 10:21:15 PM
If you make an IRA conversion to a Roth IRA do you have to convert all of it or can you convert as little as you want to?
Posted by: Pat Ronan at 02/25/2010 07:06:31 PM
IRA conversion-- Please clarify above. Say I have $50,000 in IRA's in several mutual funds and $15,000 was nondeductable (reported to IRS in year claimed) . I did converted $25,000 in 2009 but all from a deductable IRA mutual fund. I was going to pay taxes on all and assume a $0 basis. Based on above should I assume 30% of the $25K is nondeductable. In subsequent years going forward, do I keep track of the nondeductable dollar value until I claim the $15,000??
Posted by: Pat Ronan at 02/25/2010 07:15:11 PM
IRA conversion to Roth-- To compute all IRA balances is it the contributed value or the actual value on date of conversion?
Posted by: Ron at 04/12/2010 05:29:25 PM
What are the 2010 rules on generation skipping gifts and what is the current gift tax and gst rales?????