Traditional IRA to Roth IRA

[oceanlovin'ea]

Client moved IRA from Schwab to Wells Fargo in March. Then later in year converted it to a Roth IRA.

Tax Book pg 13-14 under conversion contribution says: "The distribution is taxable to the extent it does not represent a return of nondeductible basis."

Guess I am just too tired tonight. What does that mean?

Is the conversion taxable or not? It is not subject to 10% penalty, so does that mean the amount is taxable?

Linda

[Lion]

Basis

It means that if he had basis in his traditional IRA, had put in contributions that were not deductible due to income or whatever, then the basis is not taxed (it already was) but all his formerly deductible and untaxed contributions ARE taxed at the time he converts -- or the two years after if the conversion is 2010.

[Gene V]

Another way to look at it

If all of his IRA was traditional IRA (that is-it was deducted on the front page of the 1040), then it all will be taxable. If some of it were the non-deductible IRA (using form 8606 when it was put in) then that part would not be taxable.
Does that make sense?

[oceanlovin'ea]

401K to IRA

It was money she had in a 401K from a previous job and the money was at Charles Schwab. She rolled it over into an IRA at Wells Fargo in the early part of 2009 and then later in the year converted it to a Roth IRA.

The contributions to the 401K would either have been pre-tax money or employer contributions. I think that would mean that it is taxable.

Sound right?

Linda

[Jesse]

It was money she had in a 401K from a previous job and the money was at Charles Schwab. She rolled it over into an IRA at Wells Fargo in the early part of 2009 and then later in the year converted it to a Roth IRA.

The contributions to the 401K would either have been pre-tax money or employer contributions. I think that would mean that it is taxable.

Sound right?

Linda

That sounds correct.