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I started with a traditional IRA that I contributed the maximum amount to for a few years. Then I get a 401k and started contributing to that. I also continued to contribute to my IRA, but it was no longer tax deductible.

If I end up converting my traditional IRA to a Roth IRA, how would the taxes work for the years where my IRA was not tax deductible? Would I end up being double taxed on that?

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You won't end up being double taxed. The money in your Traditional IRA can be grouped into three categories:

  1. Deductible contributions
  2. Non-deductible contributions
  3. Earnings

If you convert the entire balance of your Traditional IRA to Roth, you'll pay regular income tax on the value of #1 and #3, but not #2. Unfortunately you can't choose to only convert #2 to Roth; there is something called the pro rata rule that says whenever you do a conversion, it must come proportionally from the pre-tax and after-tax components. See Form 8606 for more details.

A few side notes:

  • Are part of your non-deductible contributions from 2017 and/or 2018? If so, and your income is below the limits, you can do what's called a recharacterization to Roth. You would contact your brokerage to do this, and it'd be like you contributed to a Roth in the first place (a proportional amount of the account's earnings would be moved along with the contribution). This would be advantageous because a Roth IRA is almost always superior to non-deductible Traditional IRA.
  • Are you sure you want to do a Roth conversion? As mentioned above, you'll pay regular income tax on all but the after-tax amounts. That's basically undoing the benefit of the pre-tax deduction you received. If it's a substantial amount of money, you could push part of it into a higher income tax bracket. If you really want to convert, you might consider if it makes sense to stretch it over several years to lessen the tax impact.
  • Hmm, you pay taxes on earnings too? That's an unfortunate side-effect I hadn't considered… Do you happen to know whether they would be subject to state taxes too? – Kevin Jan 5 '18 at 21:39
  • @Kevin Yes, the earnings are taxed whether they can be attributed to the deductible or non-deductible contributions. State taxes vary, but most follow federal tax laws. – Craig W Jan 5 '18 at 21:40
  • Converting makes sense if I expect my income to go into a higher tax bracket in the future though, right? That way I pay less taxes now instead of more taxes in the future. Also, are you able to stretch your the conversion over several years? I thought it has to be an all in one action? – David Grinberg Jan 7 '18 at 6:51
  • @DavidGrinberg Converting makes sense if your tax rate (including the taxable portion of your conversion as income) is lower now than it will be when you are withdrawing money in retirement. This is obviously difficult to know for sure but in general people tend to overestimate how high their taxes will be in retirement. Your situation is also a little different since you also have non-deductible money and there is some benefit to converting for simplification. And yes, you can do partial conversions. – Craig W Jan 7 '18 at 13:43

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