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Make too much to contribute to Roth or deductable IRA. I have been contributing to Tradtiional IRA with post tax dollars for years. Can I convert my basis to a ROTH and leave the earnings in the Traditional and avoid taxes.?

Oct 26, 2012 by ted from San Diego, CA in  |  Flag
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4 votes

That is savvy question, but the short answer is no you could not.

Comment   |  Flag   |  Nov 02, 2012 from Atlanta, GA

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Under IRS rules, you can't “cherry pick” by converting just your after-tax contributions to avoid taxes. Instead, you need to determine the % of after-tax contributions across all your IRAs and then use that % to determine your taxable portion. In order to calculate this %, you need to total all balances in your IRAs. You do get to exclude your spouse's IRAs and any inherited IRAs though.

Here's an example. You have $100,000 eligible for conversion in two IRAs. One account has $85,000 in pretax contributions and earnings; the second account has $10,000 in after-tax contributions and $5,000 in earnings (pretax), for a total of $15,000. If you want to convert $10,000 this year, the taxable income on this amount would be $9,000. That's because 90% of y our total IRA is pretax contributions and earnings.

Consider converting some every year to cut your taxes.

Comment   |  Flag   |  Oct 28, 2012 from Reading, PA

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