Great questions.

For starters, only your other IRA accounts matter when determining what portion of your Roth conversion will be taxable. Money in an employer sponsored 401k plan should not be factored in. Check out the instructions to the Form 8606 available at www.irs.gov.

And it's my understanding that once you convert all of your IRAs to a Roth IRA, you can then make a non-deductible IRA contribution each year, and then immediately convert that IRA to a Roth IRA. It seems like a great way for people to get money into a Roth in years that their income is too high to contribute directly into a Roth.

Zip Code: 01801

Thanks for the prompt reply. I will plan on making these conversions every year until someone tells me I can't!

how immediately can one convert a non-deductible ira to a roth?

I have a high income. I have a roth ira from residency. i have not contributed to a non-deductible ira for 2010. But can i dump $5000 into one before april 2011 and convert it the next day to my original roth ira?

if yes, how does that affect my 2010 taxes?

thanks

Zip Code: 18024

Great question. It's my understanding that there is no waiting period to be able to convert money contributed to an IRA to a Roth IRA. It seems silly that you need to do this two-step, but that's the current rules.

You have until 4/15/11 to contribute to an IRA for 2010. Assuming you are covered under a retirement plan at work and aren't eligible to make a deductible IRA contribution, you should complete and attach a Form 8606 to your federal income tax return. This is the form you use to keep track of your post-tax IRA contributions. Next year, you'll report the Roth conversion on this Form 8606. (http://www.irs.gov/pub/irs-pdf/f8606.pdf)

As long as you have no other IRA accounts, you should not be taxed on the $5k that you contribute to an IRA then convert to a Roth IRA. If you do have other IRA accounts, then expect to be taxed on a portion of the Roth conversion.

Finally, if you have extra money, you might as well contribute $5k for 2011 at the same time, and then convert the $10k to a Roth. That will save you some time down the road, since you won't have to go through this exercise twice.

Zip Code: 01801

thanks for the reply. must I do both this year? Won't I be able to repeat the same process in 2012 for 2011, 2013 for 2012 etc?

Zip Code: 18024

Until they change the rules, it's my understanding that you should be able to contribute $5k to an IRA each year, and then immediately convert that money to a Roth IRA. So even though your income is too high to contribute to a Roth each year, you can essentially contribute to a Roth each year by doing this two-step.

Zip Code: 01801

Does this mean that regardless of our income, we can convert our nondeductible IRAs to ROTHs from now on??

Yes, it's my understanding that until the rules change, you can contribute to a traditional IRA each year (as long as you have sufficient earned income), and then can immediately convert that account to a Roth IRA. There is no longer an income limitation preventing taxpayers with AGI greater than $100k from converting their IRAs to a Roth IRA.

This strategy is not as tax efficient for people who have other IRA accounts. So be careful before rolling a 401k and 403b account held at a previous employer into an IRA. Once you do that, you'll be taxed on the bulk of the money that you convert from your IRAs starting that year.

Zip Code: 01801