How to Calculate the Taxable Portion of an IRA Rollover Conversion

by Mark Kennan, studioD

When you convert an IRA to a Roth IRA, you have to pay taxes on the deductible contributions in the account and any earnings. The only way to avoid taxes on the entire amount of your traditional IRA conversion is if you had made nondeductible contributions. If none of your contributions were nondeductible, your entire conversion counts as taxable income. Figuring the taxable portion of your rollover converting your traditional IRA to a Roth IRA allows you to plan for the additional income taxes you will owe as a result of the conversion.

Add the value of any deductible contributions made to the traditional IRA, plus the earnings on all contributions, to find the taxable portion of the IRA account. For example, if you made $39,000 in deductible contributions and your earnings in the account total $60,000, the total taxable portion of the IRA equals $99,000. Alternatively, you can subtract the value of your nondeductible contributions from the total value to find the taxable portion of the IRA.

Divide the taxable portion of the IRA by the total IRA value at the time of the rollover. For this example, if the total IRA is valued at $150,000, divide $99,000 by $150,000 to get 0.66. In this example, 66 percent of the account is taxable.

Multiply the percentage of the IRA that is taxable by the amount that you roll over into a Roth IRA to find the taxable portion. Completing this example, if you convert $38,000, multiply $38,000 by 0.66 to find that $25,080 of the conversion is taxable.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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