Question:

I am Quest IRA client since 2012 and have a question for you regarding a recent (Dec 2015) IRA contribution and subsequent Roth conversion. My initial strategy was to make a non-deductible IRA contribution and immediately convert to my Roth IRA since my income level does not allow me to contribute directly to a Roth IRA. As I am looking into this further, I think my understanding was flawed. Since I have a traditional IRA (say all traditional IRA’s combined = $500K before $5,500 contribution), the IRS will view this recent conversion to Roth as taxable on a prorata basis ($5,500 of the $505,500)…so only. about $60 of the conversion to Roth will be considered non-taxable. If I am now understanding correctly, what are my options for recharacterzing back to traditional IRA?

 

Also, I’d like to understand your views on traditional vs Roth IRA and if / when it makes sense to convert to Roth. Are you available for direct consultation?

 

Answer:

Your understanding is correct. After tax basis in all your traditional IRAs combined comes out of the traditional IRA distribution on a pro rata basis. You may recharacterize the Roth conversion back into a traditional IRA up until your tax filing deadline including extensions, so if you change your mind you can still reverse the 2015 Roth conversion.

 

Although I am more than happy to provide you with excellent education, neither I nor Quest IRA, Inc. can provide you with tax, legal or investment advice regarding your IRA. However, your question is timely, since I am teaching our class this evening on Roth conversions. Although you may not be able to attend the class in person, our classes may all be viewed live by Periscope. You can even ask questions that will be answered. If you need help with how to get set up to view the class, feel free to reach out to Rebecca Miller in our Austin office or any of our IRA Specialists.

 

Thank you for allowing us the opportunity to serve your self-directed IRA needs. Have  a great day!