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Re: my 401: in te mid 90's before Roth IRA's were around I contributed the max into aftertax savings - I am not sure how much I put in over those years but it's now worth about $160K and is mixed in with the regular funds -- can this be turned into a Roth with no tax's or how would I handle it. I wo

Jan 14, 2013 by Robert from Township of Haddon, NJ in  |  Flag
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Ray’s answer was very concise. He answered that you need to check your form 8606 for contributions to your IRA. If your after contributions were to a 401(k) it would have been form 5330. The precise name of the form is not relevant to your question.

The amount of the rollover that would be tax-free would be based on the ratio of after-tax and pre-tax money in the 401(k) or IRA. And all of your IRA’s would be aggregated together.

So if your $160,000 IRA contains $16,000 in nondeductible contributions and you convert $16,000 to a Roth IRA, just $1600, or one-tenth of the converted amount, would escape income tax. The remaining $14,400 would be taxed at your regular income-tax rate.

Further, if you have this $160,000 IRA, but also have an additional IRA for another $160,000, then just 5% of the $320,000 would be after-tax. If you converted $16,000, just $800 would escape income tax.

Comment   |  Flag   |  Jan 29, 2013 from Delray Beach, FL

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First off if you only contributed aftertax dollars into the IRA, you can find out your basis on form 8606. You would have to go back and look at each year to see how much you contributed. This total amount will be your basis. Any growth above the basis will be taxed.

To designate contributions as nondeductible, you must file Form 8606 with your tax return. When you file, you can even designate otherwise deductible contributions as nondeductible. You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause.

Failure to report nondeductible contributions. If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible. All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made.

Penalty for overstatement. If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause.

For more information: http://www.irs.gov/pub/irs-pdf/p17.pdf

Comment   |  Flag   |  Jan 15, 2013

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Peter C. Karp Level 20

Robert, We will need additional information to better understand your question. Are you still working for the company where you contributed to an after - tax savings program? If not, could you please clarify what you mean by "regular funds". Thanks!

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Comment   |  Flag   |  Jan 15, 2013 from San Francisco, CA

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