How are Nondeductible Contributions considered when Converting an IRA into a Roth?
If the IRA contains both tax-deferred and after-tax funds, the converted amount is considered to have such funds in the same ratio. For example, if a $10,000 IRA contains $2,000 (20%) in nondeductible contributions, than if $5,000 is rolled over, tax nondeductible portion is $1,000. If you have separate funds for your after-tax and deferred funds, than you can convert the after-tax funds and pay no tax on the conversion.