clydewolf

Bjk7799,

Yes, there are some different Gotchas no matter how we try to save for our retirement.

For 2008, if you have already made your contribution, you could contact your IRA custodian and tell him you need to make that a ROTH IRA contribution. That would eliminate any issues for 2008, that is assuming you otherwise qualify for a ROTH IRA contribution.

Because you did not mention 2007, It is assummed here that there were no issues with a dedcutable contribution to your IRAs.

For 2006, keep the IRS letter with your IRA paperwork. This will help you establish your basis in the IRA. You should also complete a copy of form 8606 Part I, and submit that to the IRS. Each distributon from your TIRA will consist of both Pre-tax and Post tax money. Your $8,000 is now your basis in your TIRA.

You now have a Traditional IRA with Pre-tax and Post tax money. The IRS looks at all of your TIRAs as one TIRA. Without converting youre entire TIRA to a ROTH in one step, you must convert a ratio of Pre-tax money and Post tax money. Example: Your TIRA value is $100,000. We know $8,000 is Post tax money as you have just paid the tax on that $8,000. You want to convert $10,000 to your ROTH IRA (or 10% of your TIRA balance). That $10,000 will consist of $9,200 Pre-tax money $800 Post tax money.
You will need to complete Part II of that Form 8606 for this Conversion.

Because it is unlikely that you will have any great future benefit from the this TIRA to RIRA conversion, you may not want to do that. Instead make some or all of your future IRA contributions to your ROTH IRA.