How to Calculate the Basis for Roth IRA Conversions

Basis is the after-tax money you convert to a Roth IRA from another retirement account.

Basis is the after-tax money you convert to a Roth IRA from another retirement account.

Money in a traditional IRA, 401(k) or similar tax-deferred retirement account is usually pre-tax, while dollars you put into a Roth IRA have to be after-tax. “Converting” to a Roth IRA is the Internal Revenue Service’s way of saying you must pay taxes on the cash you transfer to a Roth to turn it into after-tax dollars. Some of the funds in a tax-deferred account might already be after-tax. You can have after-tax money in tax-deferred accounts when you make non-deductible contributions to a traditional IRA or designated Roth contributions to a 401(k). Those after-tax dollars are called your "basis."

Add up all of the nondeductible contributions you have made to the tax-deferred account since you opened it. Subtract any nondeductible contributions you already withdrew. Suppose you’ve made $10,000 in nondeductible contributions to a traditional IRA, but you’ve withdrawn $2,000. That leaves $8,000 as the basis. This is also the basis for the Roth IRA conversion if you're converting the entire balance of the tax-deferred account.

Calculate the basis percentage if you are converting only part of the money in the tax deferred account to a Roth. Basis percentage is the percentage of basis dollars in the tax-deferred account you are converting. Divide the basis from Step 1 by the account balance of the tax-deferred account. For example, if your basis is $8,000 and the account balance is $50,000, you have $8,000/$50,000, which equals 0.16. Multiply 0.16 by 100 to convert to 16 percent. This is the basis percentage in the tax-deferred account.

Calculate the portion of a partial conversion you can count as basis dollars. IRS rules say the percentage of basis dollars you move in a partial conversion to a Roth IRA must be the same as the basis percentage in the tax-deferred account. Suppose you are converting $15,000 of the $50,000 balance in step 2. The basis percentage in the account is 16 percent, so 16 percent of the $15,000 you convert count as basis dollars. Multiply 16 percent by $15,000, which equals $2,400. This means $2,400 of the $15,000 you are converting counts as basis money.

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