Q: You want to convert your traditional IRA to a Roth IRA. What are the tax consequences?
A: The entire amount you convert from your traditional IRA to your Roth IRA will be taxable, unless you made nondeductible contributions to the plan. In that case, only the deductible contributions are taxable. Think of it another way. If you have $10,000 in your traditional IRA, but $1,000 of that came from nondeductible contributions, the remaining $9,000 would be taxed. If all of your contributions were tax deductible, then you owe tax on the entire conversion amount.
Normally, Roth conversions are taxable in the year the conversion took place. There is one exception for 2010 conversions, however. Visit IRS.gov for additional information.
For more information on how Roth IRA conversions work and why you might want to convert your traditional IRA, call us at 206-386-5455 or send us an email. We’re happy to help.
To your wealth,
Joe Maas, CFA, AVA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance