# Conversion of Traditional IRA to ROTH

Example # 1 – Full Conversion

Harold has two IRA accounts. One is a contributory IRA and the other is a SIMPLE IRA and the total value of both is \$22,000.  Since inception, Harold has contributed \$9,000 as non-deductible contributions.  He now decides to convert both IRAs to ROTH accounts.  Because all his accounts are being closed, the \$9,000 non-deductible amount is considered to be basis and is distributed tax free.

Example # 2 – Partial Conversion

John has three IRA accounts including a contributory IRA to which he has contributed \$14,000 after tax, a SIMPLE IRA, and a rollover IRA.  The contributory IRA balance is \$29,000; the SIMPLE IRA balance is \$23,000, and the rollover account balance is \$60,000.  Only the contributory IRA and the SIMPLE IRA are being converted to ROTH accounts. All three accounts must be taken into consideration in determining the taxable portion of the distribution:

\$14,000 / (\$29,000 + \$23,000 + \$60,000) = 0.1250

\$52,000 x 0.1250 =                           \$       6,500      tax free distribution

\$     45,500      taxable distribution

Remaining basis in the rollover IRA            \$       7,500

Example # 3 – Allocation of Basis

Rachel owns a traditional IRA with a value of \$125,000 with a basis of \$25,000.  She takes a distribution of \$125,000, converts \$100,000 to a Roth IRA and keeps \$25,000.  Her basis of \$25,000 cannot be attributed to the portion of the account that she keeps.  The basis is allocated as followed:

\$100,000        Conversions                           \$ 20,000                     Basis recovered

\$25,000          Kept                                        \$   5,000                      Basis recovered

Example # 4 – ROTH Conversion from after-tax 401(k)

Jane has \$100,000 in a Traditional 401(k), \$25,000 in non-deductible contributions, \$10,000 in gains attributable to the after tax contributions, \$45,000 in deductible contributions and \$20,000 in gains attributable to the deductible contributions.  Jane leaves her employer and decides to roll over her old 401(k) into both a traditional IRA and a ROTH IRA account.  The non-deductible contributions are rolled into a ROTH IRA.  The basis for the non-deductible contributions is \$10,000. The taxable distribution for the rollover is \$10,000.  The amount of the total conversion less basis equals the taxable gain. This is equal to the taxable distribution. The full \$65,000 from the deductible contributions and gain rolled into a traditional IRA is a non-taxable roll-over.