Any Holding Time for an IRA before Convertion to Roth?

No. Just long enough to count as part of the non-deducted and pretax prorating. e.g. you have $8000 in pretax IRA, this year you deposit $2000 post tax, the conversion is considered 20% post tax money/80% pretax.

I think you can do your 2009 non-deductible traditional contribution,

A technicallity- the pro-rating is done on the Dec 31 value of all regular IRAs, not on any of the days you did the conversion. I was surprised when I filled out a 8606 for a 2009 conversion.

I can see the logic, especially since IRAs are not normally priced on a daily basis. The only definitive statement is the Form 5498(?) statement you get each year.

I haven't looked at 8606, but I presume that it must have some provision for current-year contributions as well. Otherwise I can't see how it would work at all.

Consider: The previous year's traditional IRA value is $15,000. Let's assume that this is all non-deducted contributions (all earnings were balanced out by the recent market decline). This year you add in $5,000 and deduct it. Then you convert the entire $20,000 to a Roth IRA. So at the end of this year you have $0 in the traditional IRA.

So what part of the conversion is considered taxable? Logically it should be 25%, but how does one get there from the year end values?

Here's another example. Person has no money in IRA's. On Feb/1/2010 at 1pm they make a non-deductible contribution of $5000 for 2009, at

Are you certain you don't add 2009 contributions made after Dec 31 to the Dec 31 amount?

I'm not certain of anything.

See Line 2 of Worksheet 1-5 in

1. Enter the basis in your traditional IRAs as of December 31,

In my scenario: $0

1. Enter the total of all contributions made to your traditional IRAs during 2010 and all contributions made during 2011 that were for 2010, whether or not deductible. Do not include rollover contributions properly rolled over into IRAs. Also, do not include certain returned contributions described in the instructions for line 7, Part I, of Form 8606. . . .

In my scenario: $10000

1. Add lines 1 and 2 . . .

In my scenario: $10000

1. Enter the value of all your traditional IRAs as of December 31,

In my scenario: $0 because the traditional IRA is converted

1. Enter the total distributions from traditional IRAs (including amounts converted to Roth IRAs that will be shown on line 16 of Form 8606) received in 2010. (Do not include outstanding rollovers included on line 4 or any rollovers between traditional IRAs completed by December 31, 2010. Also, do not include certain returned contributions described in the instructions for line 7, Part I, of Form 8606.) Include any repayments of qualified disaster recovery assistance or recovery assistance distributions . . .

In my scenario: $10000

1. Add lines 4 and

2. In my scenario: 000

1. Divide line 3 by line 6. Enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter

2. In my scenario: 1.0

1. Nontaxable portion of the distribution. Multiply line 5 by line 7. Enter the result here and on lines 13 and

In my scenario: $10000

1. Taxable portion of the distribution (before adjustment for conversions). Subtract line 8 from line 5. Enter the result here and if there are no amounts converted to Roth IRAs, stop here and enter the result on line 15a of Form

In my scenario: $0

I suspect the confusion/problem lies in the footnotes to that worksheet. Instead of that, use Part I of Form 8606. You'll see that the taxable portion of the conversion is properly calculated.

Phil Marti Clarksburg, MD