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If you have an IRA that includes contributions that are both pre-tax and post-tax (deductible and non-deductible) as well as growth, you may have an option available to you that will allow for a tax-free Roth conversion.
As you know, a Roth conversion can be done with IRAs that have mixed contributions, but when this is done, you will owe tax on a portion of the rollover – the portion that includes the pre-tax money. Even if your pre-tax money is in a totally separate traditional IRA, the conversion of your post-tax money will be partly taxed due to the cream-in-the-coffee rule, which requires that all IRAs be considered as one with regard to distributions (including Roth conversions).
If you happen to have a 401(k) plan (or other Qualified Retirement Plan) that you’re participating in, you may have the option available to roll over your pre-tax money from the IRA into the QRP.
Many QRPs have the option available to allow for roll-in of IRA money. What’s cool about this is that roll-ins are only allowed when the money is pre-tax, as in deductible contributions or growth of the account. What this means is that you can separate the cream from the coffee – that is, separate the pre-tax money from the post-tax money, by rolling the pre-tax money into your QRP. Then, what’s left is your post-tax money, which you can freely convert to a Roth IRA without incurring tax.
Click the link to pick up a copy of An IRA Owner's Manual or if you'd prefer the Kindle version (and let's face it, ALL the cool kids do!), you can find that at this Kindle version link.
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And if you've come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed "advisor's advisor".
