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Is there any downside in converting a traditional IRA account to a Roth IRA, if the contributions to the traditional IRA cannot be deducted?

Let's assume that the traditional IRA account hasn't made any earning yet (e.g., one has just contributed the IRS yearly limit to it, which is 5.5k USD in 2017), since any earning on the traditional IRA account would be taxed when converting the traditional IRA account to a Roth IRA.

From what I can see:

Did I miss something? i.e. should one always convert a traditional IRA account to a Roth IRA, if the contributions to the traditional IRA cannot be deducted due to high earnings?

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    Does the IRA holder have any other IRA balance which is pre-tax?
    – JTP - Apologise to Monica ♦
    Dec 30, 2017 at 1:03
  • @JoeTaxpayer Thanks, good point, let's assume I don't (so from my understanding I shouldn't get taxed as a result of the pro-rata rule).
    – Franck Dernoncourt
    Dec 30, 2017 at 1:07

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No downside. For those over the income limit to deduct the IRA deposit, the "Backdoor Roth" is a natural choice. The warning is that if one (not you, but another reader) had any pretax deposits, the conversion would be prorated for taxation.

This is considered a 'loophole' that the new tax code doesn't appear to close. Yet.

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