If you make a non-deductible IRA contribution, can that amount be converted to a Roth IRA tax-free if you have a 401(k)?

Having a 401(k) plan doesn’t affect the taxation of an IRA conversion. The taxation depends on whether or not you have any other IRA funds, including SEP and SIMPLE IRA funds. The pro-rata tax rule applies, which means if you do have other IRA funds that contain pre-tax money, then the conversion of the non-deductible IRA contribution amount won’t be tax free. It will be partially taxable and partially tax free using the percentage of your pre-tax funds in all your IRAs to all your after-tax tax amounts (such as nondeductible contributions). You will have to file Form 8606 with your income tax return to report the conversion and to do the pro-rata calculation. You can find the form on the IRS website,  www.irs.gov. Click on “Forms and Publications.”

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