question about changing IRA to ROTH

The non-deductible basis will be prorated across your total non-Roth IRA balance. In other words, for tax purposes you can't specify that it is just the CD that you want to convert.

Suppose you have $100K total IRA balance, and $2K basis (non-deductible). If you convert $1K to Roth, of that amount $20 will be non-taxable and $980 taxable.

Now, if in the same year you make the conversion, you also make a deductible contribution and no other distributions, there's a worksheet

-Mark Bole

Thanks Mark. My plan is to contribute only to my ROTH this year. For me that's as much tax confusion as I can handle.

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I just wanted to see if I have this right: I have $50000 total in my non ROTH IRA accounts. So, if I put the $2000 of the non-deductible IRA into my ROTH only $80 will be non-taxable. Is that right?

Only if the $2,000 is your only nondeductible contribution.

In order for 80 of your 2000 conversion (4%) to be nontaxable, 4% of all your Traditional IRA year-end balances must be your IRA Basis, shown on a prior year form 8606.

If the year end balance is 50,000, then the basis shown on form 8606 was 2000.

So after this conversion, your undistributed tax basis of the TIRA shown on your new 8606 is 2000 - 80 = 1920.

Wow, now I'm really confused.

In 2002 I retired. I had about $40k in a company pension fund (not a

I looked back at my 2002 tax return and see that I filed an 8606 for the $2000 but not for the $40k rollover. Was I supposed to?

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There's an easy way to fix that problem. Fill out Part I of Form 8606. If you have specific questions about specific lines on that form, post a detailed question.

The way this "thread that would not die" is going we'll be looking at 2008 returns before verbiage alone satisfies you.

You properly filed a form 8606 showing a $2000 nondeductible traditional IRA contribution.

So when you take any distriution from any traditional IRA or convert any traditional IRA to a Roth, you again use the Form 8606 plus the year end value of all tradtional IRAs to figure how much of the distribution or conversion amount is taxable.

I gave one example of how it would be used.

The nice thing is you do not have to know these rules.

You do not have to know the reasoning that determines how much is taxable. Just continue to fill out form 8606 and it will tell you a) how much of your distribution or conversion is taxable, and b) your recalculated (undistributed) IRA Tax Basis.