Contribute to a traditional IRA: First, make a non-deductible contribution to your traditional IRA account. Ensure that you have documentation to show that you made after-tax contributions.
Convert to a Roth IRA: Convert the traditional IRA funds to a Roth IRA, typically by requesting a trustee-to-trustee transfer or by liquidating the traditional IRA and contributing to the Roth IRA within 60 days.
Report the contribution: When you file your taxes, you’ll need to report the contribution to your traditional IRA by using Form 8606. This will indicate the amount of the nondeductible contribution.
Report the conversion: You’ll also need to report the conversion from your traditional IRA to the Roth IRA. This is also done on Form 8606.
Pay taxes (if applicable): If you’ve made any gains on your traditional IRA contributions before converting to a Roth IRA, you’ll owe taxes on those gains. This is because traditional IRA contributions are typically tax-deferred, meaning you haven’t paid taxes on the funds yet. When you convert to a Roth IRA, you’re essentially “unlocking” those funds and moving them to a Roth, which requires you to pay taxes on any pre-tax amounts.
Keep records: It’s essential to document your contributions and conversions. This includes keeping track of the amounts contributed to your traditional IRA, any gains or losses, and the amounts converted to your Roth IRA.