Rollover IRA Roth conversions

[jfoxcpacfp]

Dr. Mom wrote:

Any SEP is included in the aggregate also.  I think SIMPLE is included also, but double check if you have one of those.

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Yes, both are IRA accounts.

[Dr. Mom]

KJF – TheChapelHillFinancialAdvisor wrote:

I believe the concept is that you must look at all your IRA assets at once.  Even if the conversion is coming from the non-deductible, the ratio of all your pre-tax and post-tax (another way of saying non-dedcutible) contributions is what matters.  You cannot use the ratio from one particular account.  The IRS wants you to look at all your IRA assets.

KJF

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Any SEP is included in the aggregate also.  I think SIMPLE is included also, but double check if you have one of those.

[TheCHFinancialAdvisor]

I believe the concept is that you must look at all your IRA assets at once.  Even if the conversion is coming from the non-deductible, the ratio of all your pre-tax and post-tax (another way of saying non-dedcutible) contributions is what matters.  You cannot use the ratio from one particular account.  The IRS wants you to look at all your IRA assets.

KJF

[jfoxcpacfp]

jz wrote:

Thanks, Johanna,   I have a large Rollover IRA and a small nondeductible contributory IRA.    In the future, if I make Roth conversions in my large Rollover IRA, must I pro rata to the small one too?

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The pro-rata rule typically comes into play for conversions of nondeductible IRAs when you also have a pre-tax IRA. Since you are doing the opposite, you would owe a fraction less taxes on the conversion of your pre-tax IRA.

[Dr. Mom]

jz wrote:

Thanks, Johanna,   I have a large Rollover IRA and a small nondeductible contributory IRA.    In the future, if I make Roth conversions in my large Rollover IRA, must I pro rata to the small one too?

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If you kept track of the basis of the nondeductible portion of your contributory IRA on Form 8606, you will not have to pay tax on that amount when you move it to Roth.  If you did not keep track, see if you can go back and prove what amount was nondeductible between your 1040 and the annual form you get showing what you contributed to the IRA.  I was able to go back and prove about $55K of nondeductible contributions over the years that I did not owe tax on when converted to the Roth.  You will have to pay tax on any gains in that nondeductible IRA or if there were any deductible contributions in there.  So it could make sense to knock out the small IRA in the first conversion.

[jz]

Thanks, Johanna,   I have a large Rollover IRA and a small nondeductible contributory IRA.    In the future, if I make Roth conversions in my large Rollover IRA, must I pro rata to the small one too?

[jfoxcpacfp]

The pro-rata rule will only apply if you have both pre-tax and after-tax (not Roth) balances in your IRAs. I don't know what you mean about rolling over a noncontributory IRA.

[jz]

Looking forward a few years into early retirement,  if I do Roth conversions on my rollover IRA,  will the pro rata rule apply?  Must I rollover my noncontributory IRA also?