Can I roll over my after tax IRA $ into a Roth?

[garyt]

In the past I've made a few after tax IRA contributions. Could I now transfer/roll over this money to a Roth IRA without any ramifications? Just the initial contributions of course, not any gains.

 

[LOL!]

No, you cannot do that. See IRS Form 8606 and its instructions. This is a conversion, not a rollover. You are already familiar with this Form 8606 because you have made non-deductible IRA contributions and have been filing this form I guess for awhile.

If this was not in an IRA, but in a 401(k), then the answer would be different.

 

[Dash man]

The problem is you can't separate the gains from the contributions. You'd have to pay tax on the percentage of the withdrawals that are gains. It's a mess I wouldn't want to get into.

 

[jebmke]

The problem is you can't separate the gains from the contributions. You'd have to pay tax on the percentage of the withdrawals that are gains. It's a mess I wouldn't want to get into.

The actual tax reporting isn't that onerous. What might be a stinger is if there are also pre-tax IRAs, in which case, the whole mess gets treated as one giant IRA and could result in significant tax hit.

 

[Gotadimple]

The actual tax reporting isn't that onerous. What might be a stinger is if there are also pre-tax IRAs, in which case, the whole mess gets treated as one giant IRA and could result in significant tax hit.

Form 8606 allows you to distinguish between deductible contributions (pre-tax) and non-deductible contributions (post tax).

 

[Dash man]

The actual tax reporting isn't that onerous. What might be a stinger is if there are also pre-tax IRAs, in which case, the whole mess gets treated as one giant IRA and could result in significant tax hit.

That's why it's a mess I prefer to avoid.

 

[garyt]

Thanks

 

[panacea]

Form 8606 allows you to distinguish between deductible contributions (pre-tax) and non-deductible contributions (post tax).

True but that doesn't mean you aren't taxed on the whole bundle, excluding after-tax contributions. Maybe that's what you meant.

The 8606 requires you to identify total Traditional IRA balances, including growth and any other pre-tax IRAs. If you only had a Traditional IRA contribution of say, $6,500 and no growth, you could convert it to a Roth for free. However, if you also had a $3,500 Rollover IRA (never taxed) you have to record that on your 8606 and that goes into the denominator on the tax equation. So, in this example even if you wanted to just convert the $6,500, 35% of the conversion would be taxed at your ordinary income tax rate. It's not particularly complicated, although the 8606 is not user-friendly at all. The main thing is that the right taxable amount carries forward to page one of the tax return. So the IRA distribution amount would say $6,500 but the taxable amount of the distribution would be a smaller amount, since you had basis in the traditional IRA.

 

[Gotadimple]

True but that doesn't mean you aren't taxed on the whole bundle, excluding after-tax contributions. Maybe that's what you meant.

The 8606 requires you to identify total Traditional IRA balances, including growth and any other pre-tax IRAs. If you only had a Traditional IRA contribution of say, $6,500 and no growth, you could convert it to a Roth for free. However, if you also had a $3,500 Rollover IRA (never taxed) you have to record that on your 8606 and that goes into the denominator on the tax equation. So, in this example even if you wanted to just convert the $6,500, 35% of the conversion would be taxed at your ordinary income tax rate. It's not particularly complicated, although the 8606 is not user-friendly at all. The main thing is that the right taxable amount carries forward to page one of the tax return. So the IRA distribution amount would say $6,500 but the taxable amount of the distribution would be a smaller amount, since you had basis in the traditional IRA.

Sorry, that was a quick comment without a clearly constructed sentence!

You are correct in everything you say. I was responding to post #4 above that said: "What might be a stinger is if there are also pre-tax IRAs, in which case, the whole mess gets treated as one giant IRA and could result in significant tax hit."

Because you identify pre- from post-, and the form creates a percentage allocation between both, you might not be paying a lot of taxes if the majority of the account contains post-tax investment. A 'significant tax hit' would only happen if the majority of the account was pre-tax. And, unfortunately you aren't allowed to pick which part of the IRA is included in the distribution - it is a proportional distribution.

-Rita

 

[Sunset]

Form 8606 allows you to distinguish between deductible contributions (pre-tax) and non-deductible contributions (post tax).

Right, we are facing this, and it's not a tax hit, but a pain in the butt as you have to do the calculation every year for the rest of your life, or until all the IRA's are empty. Even if you only have a few thousand of post-tax money in 1 IRA and hundreds of thousands in the other.

Unless of course, you want to pay the tax twice on the few thousand and forget it.

Note: you have to count all your IRA's not just empty the one with the mixed contributions, which is why it goes on every year.