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If you have an IRA that includes contributions that are both pre-tax and post-tax (deductible and non-deductible) as well as growth, you may have an option available to you that will allow for a tax-free Roth conversion.

As you know, a Roth conversion can be done with IRAs that have mixed contributions, but when this is done, you will owe tax on a portion of the rollover – the pro-rata portion that includes the pre-tax money. Even if your pre-tax money is in a totally separate traditional IRA, the conversion of your post-tax money will be partly taxed due to the cream-in-the-coffee rule, which requires that all IRAs be considered as one with regard to distributions (including Roth conversions).

For example, let’s say you have an IRA (or several IRAs combined) that is comprised of $5,000 in deductible contributions, $4,000 in non-deductible

Keep reading this article on Financial Ducks In A Row.

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