Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
IRA/Roth Conversion
Posted by: tubularbells99, March 16, 2017 02:52PM
If my TIRA cost basis is less than the fair market value, can I convert the entire TIRA to a Roth? My only documentation is that provided by my mutual fund company.

Re: IRA/Roth Conversion
Posted by: triad, March 16, 2017 05:04PM
Your post doesn't make sense.

For 99% of us, our cost basis in our traditional IRA is $0. If you convert all of it to a ROTH, all of it will be taxable.

A few people did after tax contributions to a TIRA. When they convert all of their TIRA to a Roth, the 1099-R will show the cost basis and they only report as income the portion that is taxable.

It's extremely unlikely that the TIRA basis would be more than the FMV.

Re: IRA/Roth Conversion
Posted by: Alan S., March 16, 2017 10:42PM
Regardless of having any cost basis in the TIRA, the 1099R will show the entire conversion as taxable in Box 2a. This is an IRS requirement. The TIRA custodian has no idea whether your IRA has cost basis or not. However, the IRS discovered many years ago that if 2a were left empty, people assumed the distributions were not taxable.

Therefore, it is up to the taxpayer to correctly report any cost basis they have on Form 8606 for the year those non deductible contributions were made. If that cost basis is 10% of the adjusted year end TIRA value, then 10% of the conversion will be non taxable. Form 8606 Part I shows the math to calculate the taxable amount.

You can always convert your entire TIRA to Roth if you want to and can handle the tax bill. Normally, if you do have any cost basis it will be far less than the value of all your IRAs. Further, if you convert and do not like the tax bill or your converted amount drops in value, you can recharacterize (reverse) all or part of your conversion.

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