If you have money in a traditional IRA, you can convert it to a Roth. It doesn't matter whether your traditional account contains after-tax contributions, pre-tax contributions or a mix of both. Normally you have to pay tax on a conversion, but there's no tax due on the after-tax money you put in the original IRA.
You can't reduce the tax on conversions by choosing how much of the conversion comes from after-tax dollars. The IRS has a formula for figuring how much of any withdrawal is taxable, and it applies to conversions too. If 40 percent of your IRA consists of after-tax contributions, roughly 40 percent of your conversion is exempt from tax. If you have more than one IRA, you enter the total after-tax and pre-tax amounts in all your accounts in the formula, no matter which IRA you convert.
You can convert your traditional IRA by withdrawing some or all of the money and depositing it in a Roth. It's simpler and safer to have the account trustee do it for you: If you withdraw the money and don't complete the conversion within 60 days, the IRS will treat the whole amount as a taxable withdrawal -- though if all of your conversion comes from after-tax contributions, that won't be a problem.
If your income is high enough you can't contribute to a Roth, you can still fund a Roth by making a conversion. It can be a great deal if you don't qualify to make tax-free contributions to a traditional IRA, which can happen if you have a workplace retirement plan along with your high income. If you pay tax on all your contributions, convert them to a Roth immediately. As the contributions won't have had time to earn much interest, almost none of the conversion will be taxable.
If you decide for any reason that you don't want to put the money in a Roth, the IRS gives you the right to a do-over. You can recharacterize contributions to one IRA account as going into a different account. That option includes conversions: if you decide you want the money in a different Roth, or that your traditional IRA offers better options, direct the account trustee to place the money where you prefer it.
- Rules for the Partial Conversion of a 457 Plan to a Roth IRA
- Can a Monthly Annuity Be Rolled Over to a Roth IRA?
- How to Make Pretax Contributions to an IRA
- Are Distributions From a Roth IRA Taxable?
- Can I Contribute to Both the Company Pension & an IRA?
- Tax Differences in a Roth 401(k) Vs. a Roth IRA