$100,000
Since you never received a tax deduction for these contributions, these non-deductible contribution amounts are not taxed when withdrawn from the IRA account and they are commonly known as basis.. Converting IRAs to Roth IRA. In 2010, Congress eliminated the $100,000 income limit on Roth IRA conversions. If you happen to earn over the IRS limits, you can still contribute to an IRA, but you will not be entitled to an IRA contribution deduction on your tax return. This is known as a non-deductible IRA contribution, which requires you to file Form 8606 with your tax return listing the contribution as such. Deductible vs. nondeductible IRA contributions. In 2013, the maximum you can contribute to all of your traditional and Roth IRAs is the lesser of (a) $5,500 or (b) your taxable compensation for the year. If you're 50 or older, the limit is $6,500. You can make contributions to a traditional IRA until age 70-1/2.  However, your pre-existing (non-Roth) IRA funds in Traditional, SEP, and SIMPLE IRAs will likely all be deductible contributions and their pre-tax earnings. When you make a Roth conversion, you cannot limit your conversion to just your nondeductible contribution. A Backdoor Roth IRA is a technique for contributing to a Roth IRA when your income exceeds the contribution limit. There is no income limit on contributing to a nondeductible Traditional IRA, nor on converting a Traditional IRA to a Roth IRA. In both Roth IRA and non-deductible traditional IRA, contributions are non-deductible, meaning that you fund them with after-tax money. The major difference comes from the way earnings are taxed. Earnings are taxed as ordinary income if you withdraw them from a non-deductible traditional IRA. If you are, a Roth IRA is strictly better than a non-deductible traditional IRA because earnings are tax free in a Roth IRA. If you are not eligible for a Roth IRA, then the answer is somewhat complicated. See other questions on this page for details. Although not as exciting as a deductible IRA, earnings from the non-deductible IRA remain sheltered from income taxes until withdrawn. Generally, deductible Traditional IRA contributions are limited if you or your spouse is covered by an employer provided retirement plan. Meanwhile, Roth IRA contributions are limited as well. These contribution limitations for these IRA’s are based on your modified adjusted gross income. 1 For some people who want to invest in a Roth but can’t because of the income limitations, the non-deductible IRA offers a back door strategy. 2  In 2010, the rules where lifted and now anyone regardless of income can now convert a Traditional IRA to a Roth IRA. Instructions. Request a conversion from your traditional IRA containing non-deductible contributions to your Roth IRA by completing the Roth IRA conversion form available from your financial institution. Once you have submitted the form, the financial institution will automatically transfer the money Comparing the Roth IRA with a traditional nondeductible IRA. You can contribute to an IRA even if you're covered by a retirement plan sponsored by your employer. But in this case your deduction may be reduced or eliminated, depending on your income level. If you're choosing between a Roth IRA and a nondeductible contribution to a regular IRA, the Roth IRA can be a clear winner. Here's the choice: 1  Contribute to a regular IRA. 2  Get no deduction when your money goes in. The IRA consists of $90,000 in non-deductible contributions and $10,000 in earnings. If she decides to convert the entire IRA to Roth, she would only have to pay tax on the earnings portion ($10,000). At a 30% tax rate, she would owe $3,000 in tax to convert the entire $100,000 to Roth. If Smith had no earnings in this IRA, the entire $100,000 (all non-deductible contributions) could be converted with no tax liability. If you happen to earn over the IRS limits, you can still contribute to an IRA, but you will not be entitled to an IRA contribution deduction on your tax return. This is known as a non-deductible IRA contribution, which requires you to file Form 8606 with your tax return listing the contribution as such. If this is the case, then you can convert your entire Non-deductible IRA to a Roth IRA, and you'll only have to pay tax on the earnings portion. For example, Susan Smith is in a 30% tax bracket this year and she only has one IRA worth $100,000. If you happen to earn over the IRS limits, you can still contribute to an IRA, but you will not be entitled to an IRA contribution deduction on your tax return. This is known as a non-deductible IRA contribution, which requires you to file Form 8606 with your tax return listing the contribution as such.
http://www.investopedia.com/articles/pf/12/roth-ira.asp http://www.marketwatch.com/story/backdoor-roth-ira-conversion-tax-free-2013-04-30 http://www.bogleheads.org/wiki/Backdoor_Roth_IRA https://www.bogleheads.org/wiki/Non-deductible_Traditional_IRA http://www.figuide.com/should-i-make-non-deductible-ira-contributions.html http://www.ehow.com/how_6741043_convert-nondeductible-ira-roth.html http://www.fairmark.com/rothira/nodeduct.htm http://www.investopedia.com/articles/pf/12/roth-ira.asp http://www.investopedia.com/articles/pf/12/roth-ira.asp
non deductible ira to roth ira