If an individual does not do a full conversion and aftertax dollars are in the existing traditional IRA(s), how is the taxable amount of the conversion determined?
The nontaxable amount is determined by taking the amount converted and multiplying it by a fraction. The numerator of the fraction is the total aftertax dollars in all of an individual’s existing non-Roth IRAs and the denominator is the non-Roth IRAs account value at year-end plus the converted amount. The balance of the conversion is taxable. Assume a hypothetical participant, Sally, has IRA accounts totaling $80,000 at the end of 2010, the year the conversion occurred, and her IRAs contained $10,000 of aftertax dollars. She converted $20,000. However, Sally (more likely her accountant) must complete a calculation to determine basis recovery (i.e., how much of her conversion is income tax-free).
The nontaxable amount is determined by taking the amount converted and multiplying it by a fraction. The numerator of the fraction is the total aftertax dollars in all of an individual’s existing non-Roth IRAs and the denominator is the non-Roth IRAs account value at year-end plus the converted amount. The balance of the conversion is taxable. Assume a hypothetical participant, Sally, has IRA accounts totaling $80,000 at the end of 2011, the year the conversion occurred, and her IRAs contained $10,000 of aftertax dollars. She converted $20,000. However, Sally (more likely her accountant) must complete a calculation to determine basis recovery (i.e., how much of her conversion is income tax-free).
Related Questions
- If an individual does not do a full conversion and aftertax dollars are in the existing traditional IRA(s), how is the taxable amount of the conversion determined?
- Are JTPA closeout costs for conversion to WIA to be taken from existing administrative dollars only?
- Can I rollover my Qualified Retirement Plan dollars (I.e. 401(k)) to an existing, traditional IRA?
