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bkb1956
bkb1956, Finance Enthusiast
Category: Finance
Satisfied Customers: 2967
Experience:  IRS Enrolled Agent, 18+ years of experience in tax preparation with associated finance experience.
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For lane if i convert 50000 from traditional ira to roth is

Customer Question

For lane if i convert 50000 from traditional ira to roth is it 100% taxable or pro-rata taxable based on "cost basis" of traditional and can ya define "cost basis" calculation if applicable?
Submitted: 2 months ago.
Category: Finance
Expert:  bkb1956 replied 2 months ago.

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

The Traditional IRA or retirement plan being converted will consist of pretax contributions and earnings. In such cases, the entire amount converted — contributions plus earnings — will be taxable as ordinary income. In some cases, an investor may hold “after-tax” funds in his or her IRA, such as in a non-deductible IRA. Since the contributions were previously taxed, only subsequent earnings would be taxable on a conversion to a Roth IRA.

In other words, your pre-tax contributions PLUS earnings will be 100% taxable.

The following link contains excellent information as well as an example:

https://www.putnam.com/literature/pdf/IR757.pdf

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Expert:  Lane replied 2 months ago.

Hi ... thanks for asking for me ... i'm not getting alerts when you ask for me for some reason ... Sorry for the wait.

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Only growth above cost basis is taxed.

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Cost basis is the amount contributed that was not deductible. (Said differently, after tax contributions)

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Amount contributed for which no deduction was given IS your costs basis.

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As an example, dollars in an IRA where all contributions came from a pre-tax (non-designated Roth account) 401(k) that was rolled over to an IRA, is 100% taxable.

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Hope this helps.

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Thanks for waiting on ME!

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Lane

Expert:  bkb1956 replied 2 months ago.

First expert here - since Lane confirmed my initial answer to you, please let me know if I can assist you further.

Best regards,

Barb

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