- 1). Calculate the portion of your IRA conversion made up of nondeductible contributions by dividing the amount of nondeductible contributions in your traditional IRA by the total IRA value and multiplying the result by the amount of the conversion. For example, if you had $6,000 in nondeductible contributions out of $60,000 in the account and you were converting $30,000, you would divide $6,000 by $60,000 to get 0.1 and then multiply 0.1 times $30,000 to find that $3,000 of your conversion is from nondeductible contributions.
- 2). Subtract the value of your nondeductible contributions in your conversion from the total amount of the conversion to find the taxable amount. In this example, you would subtract $3,000 of nondeductible contributions from a total conversion amount of $30,000 to find $27,000 would be taxable.
- 3). Determine your tax bracket before the inclusion of your IRA conversion by consulting the most recent version of IRS Publication 17 based on your filing status. For example, if in the 2009 tax year you are married filing jointly with a taxable income of $125,000, you would fall in the 25 percent tax bracket.
- 4). Subtract your taxable income from the upper limit of the tax bracket in which you fall. Continuing the example, you would subtract $125,000 from $137,050 to get $12,050.
- 5). Subtract the result from Step 4 from the taxable amount of your Roth IRA conversion. If the amount is $0 or less, your entire conversion falls in that tax bracket. If the result is greater that zero, the remainder is taxed at the next highest tax bracket. In this example, you would subtract $12,050 from $27,000 to find that $14,950 would be taxed at the next tax bracket, which is 28 percent.
- 6). Calculate the taxes on your conversion by multiplying the amounts in each tax bracket by the tax bracket and totaling the results. In this example, you would multiply $12,050 by 0.25 to get $3,012.50 and multiply $14,950 by 0.28 to get $4,186. Finishing the example, you would add $3,012.50 and $4,186 to find the total tax on the conversion would be $7,198.50.
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