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You are here: Experts > People/Relationships > Retirement Planning > Retirement Planning > Question on Roth conversion
Expert: David M Iannopollo
Date: 5/12/2008
Subject: Question on Roth conversion
Question
I have a tax question on converting to a Roth IRA. Suppose I have two Traditional IRAs: IRA A that is funded only with fully deductible contributions, and IRA B that is funded with only non-deductible contributions. Further suppose that IRA B has grown in value by $100.
Now I wish to convert only IRA B to a Roth IRA. My understanding is that the amount subject to tax is not $100, but a larger proportion of all assets in IRA B that takes into account amounts in IRA A.
My question concerns a variation of the above:
Suppose only IRA B as above, (no IRA A), and SEP-IRA C funded only with fully deductible contributions. If I want to convert only IRA B to a Roth IRA, does SEP-IRA C have any bearing on figuring the taxable amount when converting only IRA B?
Thanks for your insights!
Answer
Hi John,
Your IRA's will be treated separately for this purpose. If you convert a non deductible IRA to a Roth you will only have to pay earnings on the growth of the account since you were already paid taxes on the non deductible contributions. With a deductible IRA you get taxed on the entire conversion amount because you have paid no taxes as of yet. I hope this answers your question. Best of luck!
Dave
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