Fiction: I can pick and choose which Traditional IRA I would like to convert to a Roth IRA in order to avoid paying any taxes.

Fact: Aggregation rules disallow individuals from "cherry picking" which assets to convert to a Roth IRA. Instead, all IRAs must be lumped together. For example, John wishes to convert $25,000 in his nondeductible IRA to a Roth IRA. John also has $75,000 in a Rollover IRA. John will need to combine both IRAs to calculate the percentage of nondeductible assets to total IRA assets, then apply that percentage to the amount of assets converted to determine the nontaxable amount that was converted.

In this example, John will have to pay tax on 75 percent of the amount converted ($18,750); 25 percent of the conversion amount will be considered nontaxable.


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