Roth Conversion of only After-Tax Contributions
Hello Terry,
I have Traditional IRAs that were established with after-tax contributions. I have been filing Form 8606 for these contributions. I know that the original contributions are non-taxable when I take distributions (based on the percentage of my overall Traditional IRAs’ values) but can I move/transfer/convert only these after-tax contributions only to my Roth IRA without the funds being subject to tax and taxable income?
I am 70 years of age. Not taking RMDs yet except for an Inherited IRA (suspended for 2020).
Thank you,
Richard
Terry Says
That was such a tricky question that I had to go to the true IRA expert – Ed Slott of www.IRAHELP.com. Here’s what he said.
Easy question. The answer is no. You cannot convert only the after-tax funds and pay no tax on a Roth conversion.
Every dollar converted is treated the same as any distribution from an IRA that contains after-tax funds. Each dollar converted to the Roth will be tax-free only to the extent of the percentage of after-tax funds in all IRAs to the total balance of all IRAs. So if he has say $100,000 in total IRAs and $10,000 of those funds are after-tax (from nondeductible IRA contributions) , if he converts $10,000 to a Roth IRA, then only $1,000 (or 10%) of the conversion will be tax free. $9,000 will be taxable.
Ed
