2010 Roth Contribution

For those who have non-deducted traditional IRA money, the dance is a bit more complex as they have to prorate between their post-tax money and the pretax balance to determine tax due on the conversion.

Joe

It's as easy as you describe as long as you have no pre-tax money in any traditional IRA account at the end of 2010. Otherwise you have to do the proration in Part I of Form 8606, and part of the conversion will be taxable.

Don't blame the IRS. Congress left them no choice. And there is a substantial difference between eliminating the restriction on only conversions and eliminating the restriction on both conversions and contributions, for the reason stated above.

Phil Marti Clarksburg, MD

So could the solution be to rollover the deductible contributions of an IRA into a 401k? This leaves only the non-deductible contributions in the IRA.

Yes, that works. The rules are different for a rollover out of the traditional IRA into an employer's plan than they are for distributions. You can roll just the pre-tax amount in your IRA into the plan (assuming the employer's plan allows the rollover). See Pub

Phil Marti Clarksburg, MD

Which part of publication 590? I searched for 401k but didn't find anything useful.

text -

The employer plan has to permit it. I am right now trying to find out if my employer does. I know they permit "rollover ira" money to be rolled, but I don't know if they permit SEP-IRA money to be rolled. I suspect they might not, because I think that until recently SEP-IRA's could not be rolled. I have a self-employed 401(k) I could roll into, but this would tip me over $250K in that and trigger Form 5500 filings (OK, 5500EZ, but still it's a pain) and also the fees in that plan are bad. (My employer plan has some index funds with expenses of 5 basis points!)

See the discussion beginning on page 23. As I understand things, a 401 (k) is a "qualified trust" mentioned on page 24.

Phil Marti Clarksburg, MD

What is this form 5500? And if it's your own 401(k), can't you pick a provider that has better options (including picking your own stocks)?

Found it in HTML

Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA. Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution could not be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or do not roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible.

Eligible retirement plans. The following are considered eligible retirement plans.

• Individual retirement arrangements (IRAs). * Qualified trusts. * Qualified employee annuity plans under section 403(a). * Deferred compensation plans of state and local governments (section 457 plans). * Tax-sheltered annuities (section 403(b) annuities).

Anyway, the above is not clear to me. Suppose I contributed 50k to my employer traditional 401k. Then I rollover that 401k into an IRA. Years later the IRA is worth 100k, but no additional contributions were made to the IRA. There was also 20k of non-deductible contributions made to another traditional 401k, and this IRA is now worth 50k.

If I were to withdraw 100k from my IRA's (as a distribution),

The cryptic paragraph in the Quote above seems to say that if I rollover 100k from the IRA to the 401k, then there are no tax consequences. In fact, I can rollover 130k, leaving just 20k of non- deductible contributions in the IRA. Is that right?