IRA Conversion to Roth IRA tax saving strategy


M

michaeljc70

I do consulting and my income varies. If I have a year where
I don't make very much money, I am thinking about converting
my traditional IRA to a Roth. The reasoning is this: any
taxable part I would have to pay would probably be offset by
my itemized deductions. I could control how much I convert
by only doing enough IRAs (I have multiple) at a time. My
itemized deductions generally run over $30K, regardless of
my income. This seems like a reasonable way to make good on
those deductions in a year when my income isn't high enough
too. Any comments on this strategy? It is basically
legally shifting income to a year where I don't have much.
 
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P

Phil Marti

I do consulting and my income varies. If I have a year where
I don't make very much money, I am thinking about converting
my traditional IRA to a Roth. The reasoning is this: any
taxable part I would have to pay would probably be offset by
my itemized deductions. I could control how much I convert
by only doing enough IRAs (I have multiple) at a time. My
itemized deductions generally run over $30K, regardless of
my income. This seems like a reasonable way to make good on
those deductions in a year when my income isn't high enough
too. Any comments on this strategy?
Sounds like a good idea to me
 
D

David Woods, EA, ChFC, CLU

I do consulting and my income varies. If I have a year where
I don't make very much money, I am thinking about converting
my traditional IRA to a Roth. The reasoning is this: any
taxable part I would have to pay would probably be offset by
my itemized deductions. I could control how much I convert
by only doing enough IRAs (I have multiple) at a time. My
itemized deductions generally run over $30K, regardless of
my income. This seems like a reasonable way to make good on
those deductions in a year when my income isn't high enough
too. Any comments on this strategy? It is basically
legally shifting income to a year where I don't have much.
It's a common financial planning strategy. The idea is
legal and makes sense if you can minimize the tax hit.
 
T

Thomas Healy

I do consulting and my income varies. If I have a year where
I don't make very much money, I am thinking about converting
my traditional IRA to a Roth. The reasoning is this: any
taxable part I would have to pay would probably be offset by
my itemized deductions. I could control how much I convert
by only doing enough IRAs (I have multiple) at a time. My
itemized deductions generally run over $30K, regardless of
my income. This seems like a reasonable way to make good on
those deductions in a year when my income isn't high enough
too. Any comments on this strategy? It is basically
legally shifting income to a year where I don't have much.
I recommend this strategy to many of my clients; in fact, it
may pay to convert enough to fill up the 15% bracket. You
can always convert more than enough; if you find you
over-converted, you've got until October 15 to put the
excess back into the IRA. Then, 30 days later, you can take
it out for the next year.
 
H

Harlan Lunsford

Thomas said:
I recommend this strategy to many of my clients; in fact, it
may pay to convert enough to fill up the 15% bracket. You
can always convert more than enough; if you find you
over-converted, you've got until October 15 to put the
excess back into the IRA. Then, 30 days later, you can take
it out for the next year.
ACtually I would say "to fill up at least the 10% bracket".
naturally I can say that, since over hear in the Southeast,
as opposed to Colorado, we do have clients in that bracket.
(grin!

ChEAr$,
Harlan Lunsford, EA n LA
Thu 10 Feb 2005
 
D

D. Stussy

ACtually I would say "to fill up at least the 10% bracket".
naturally I can say that, since over hear in the Southeast,
as opposed to Colorado, we do have clients in that bracket.
Don't forget to look at your state's income tax brackets too....
 
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H

Harlan Lunsford

Don't forget to look at your state's income tax brackets too....
Great advice and valuable addendum. Especially in Alabama,
where a single person has tax and therefore has to file
when gross is in excess of 1875$! So one could have state
tax on the distribution and no federal tax until over that
threshold 4850+3100. equals... uh... 7950.
Somebody check my math, which was my worst subject in high
school.

ChEAr$,
Harlan Lunsford, EA n LA
 
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M

michaeljc70

Yes, that is a good point. In Illinois we don't get to
deduct barely anything from our income. We pay basically a
flat 3%.
 

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