Converting Non-Deductible IRA to Roth

[Taxman3301]

MFJ taxpayers are both active participants in employer 401K Plan. AGI is substantially above phaseout limits for both Traditional and Roth IRA'.

For 2011, each made a $5000 non-deductible contribution to a new Traditional IRA and then "converted" it to a Roth. Each received a 1099 showing a distribution of the $5k marked "taxability not dertermined" with a Code 2.

Since the initial contribution was non-deductible (or at least we will not deduct it on his 2011 return) we will prepare an 8606 to that effect. As a second step, we will mark the 1099 in Drake Software to indicate it was rolled into a similar plan.

Can you in fact "convert" a non-deductible Traditional IRA into a Roth given the high incomes?

Thanks!

[ChEAr$]

MFJ taxpayers are both active participants in employer 401K Plan. AGI is substantially above phaseout limits for both Traditional and Roth IRA'.

For 2011, each made a $5000 non-deductible contribution to a new Traditional IRA and then "converted" it to a Roth. Each received a 1099 showing a distribution of the $5k marked "taxability not dertermined" with a Code 2.

Since the initial contribution was non-deductible (or at least we will not deduct it on his 2011 return) we will prepare an 8606 to that effect. As a second step, we will mark the 1099 in Drake Software to indicate it was rolled into a similar plan.

Can you in fact "convert" a non-deductible Traditional IRA into a Roth given the high incomes?

Thanks!

You didn't give the agi so I haven't checked your last statement.

But assuming it's permitted.......

To determine whether any of the IRA distribution IS taxable, you have to use 8606 and include ALL IRA's, to determine percentage taxable. If all IRA contributions have always been non deductible (???) then none will be.
However, work thru the 8606 to make sure.

[BP.]

Can you in fact "convert" a non-deductible Traditional IRA into a Roth given the high incomes?

TTB 13-13. Have clients who did what yours did, but for 2012.

[Burke]

See prior threads on this type of action. Yessss..... you can! Because Congress has not yet reinstated the $100K AGI limitation on ROTH conversions, this is what is known as a "work-around."

[Taxman3301]

IRA Contributions-Then Roth Conversion

See prior threads on this type of action. Yessss..... you can! Because Congress has not yet reinstated the $100K AGI limitation on ROTH conversions, this is what is known as a "work-around."

I have confirmed Burke's answer with two other professional organizations. I still have a hangup that an otherwise ineligible taxpayer can "qualify" to make a non-deductible contribution to a Traditional IRA and have the contribution accumulate tax deferred.

Now, since 2010, it appears the non-deductible contribution can now be "converted" to a Roth and accumulate tax free upon withdrawl (excepting the five yr rule and age 59.5 rule). Was this really the intent when waiving the 100K limitation?

If anyone is still wondering what the example AGI is, it is in excess of $300K.

[JohnH]

Anybody want to bet that at some time in the future Congress will figure out a way to indirectly tax Roth IRA withdrawals? The current situation is just too tempting, especially for high-income taxpayers, and I have a feeling there's a briar patch somewhere in the future for Roth IRA's. I'm not saying we shouldn't do them because we ahve to react to the laws as they are currently written, but at some point in the future we're going to look back and say "I just KNEW that was too good to be true."

[Burke]

Was this really the intent when waiving the 100K limitation?
.

I am sure it was not. If they even thought about the consequences. The waiver was included in that special legislation in 2010 where you could rollover the IRA into a ROTH and spread the tax over 2011 and 2012. They just forgot to "sunset" it. They'll get around to it when they figure out what's happening. Kind of like the depreciation thing in 1997.