Recently, financial planner, Ed Slott, explained whether a person could convert a non- deductable IRA deposit to a Roth IRA tax free if the individual has a 401 (k). The IRA conversion is not affected by whether or not a person has a 401 (k). Instead, the tax hinges on if there are any additional IRA contributions. If there are additional IRA contributions that include pre-tax funds, then the conversion of the non-deductible contribution will not be tax-free. That IRA contribution will be partially taxable. Individuals who have these types of contributions need to file Form 8606 with the IRS to report the conversion and figure out the pro rata calculation. The IRS website has a downloadable version of the form.
See Ed Slott, Ask Ed Slott: Immediate Annuities’ Impact on RMDs?, FinancialPlanning.com, Nov. 21, 2013.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
