quick question about IRA to ROTH conversion


J

Jane

I understand that if I convert some or all of a traditional IRA to a
ROTH this year I can spread the tax burden over two years.

Question: I have already contributed the $6000/year after tax money
limit to a ROTH for 2010. Does an IRA to ROTH conversion have any
limits or can I convert as much as I want to?

I am 65. I don't need to use my 401k or IRA monies at the moment, but
even if I did tomorrow I would have enough none ROTH money to use so
that the ROTH money could be untouched for at least 5 years. I don't
know how much I might convert, but I wanted to know my options.

Thanks.

Jane
 
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A

Arthur Kamlet

I understand that if I convert some or all of a traditional IRA to a
ROTH this year I can spread the tax burden over two years.

Question: I have already contributed the $6000/year after tax money
limit to a ROTH for 2010. Does an IRA to ROTH conversion have any
limits or can I convert as much as I want to?
No limit to how much you can convert in addition to the 6000
that you can contribute.

I am 65. I don't need to use my 401k or IRA monies at the moment, but
even if I did tomorrow I would have enough none ROTH money to use so
that the ROTH money could be untouched for at least 5 years. I don't
know how much I might convert, but I wanted to know my options.
The five years for Roth conversions starts with Janary 1 of the first
tax year for which you have either made a Roth conversion or a
Roth contribution.


There is a sepearate five-year interval for conversions that no
longer applies to you since you are over age 59 1/2.
 
J

JoeTaxpayer

I understand that if I convert some or all of a traditional IRA to a
ROTH this year I can spread the tax burden over two years.

Question: I have already contributed the $6000/year after tax money
limit to a ROTH for 2010. Does an IRA to ROTH conversion have any
limits or can I convert as much as I want to?
No limit. I'd warn you to be very aware of your marginal rate. Remember,
each year your income starts at zero, you first get a standard deduction
and exemption. They some 10% income, 15% etc. A conversion all gets
added to the top, so I'd suggest you figure out where you are in your
current bracket and just convert enough to "top it off." If this doesn't
make sense please ask for clarification. The strategy can save or cost
you quite a bit depending on execution.

Joe
 
W

Wallace

JoeTaxpayer said:
No limit. I'd warn you to be very aware of your marginal rate. Remember,
each year your income starts at zero, you first get a standard deduction
and exemption. They some 10% income, 15% etc. A conversion all gets added
to the top, so I'd suggest you figure out where you are in your current
bracket and just convert enough to "top it off." If this doesn't make
sense please ask for clarification. The strategy can save or cost you
quite a bit depending on execution.

I would also suggest people carefully consider the possibility that Roths
will be taxed in the future, or subjected to "means testing".
 
J

Jane

I would also suggest people carefully consider the possibility that Roths
will be taxed in the future, or subjected to "means testing".
I do understand. I will probably have to wait for a while in order to
have a better idea of what my yearly income will be. However, I
thought that there was a one time offer that will allow me to spread
the tax owed over a two year period. 2011 and 2012, I think. Not
true?
 
J

Jane

No limit to how much you can convert in addition to the 6000
that you can contribute.


The five years for Roth conversions starts with Janary 1 of the first
tax year for which you have either made a Roth conversion or a
Roth contribution.

There is a sepearate five-year interval for conversions that no
longer applies to you since you are over age 59 1/2.
Thank you.
 
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A

Arthur Kamlet

I do understand. I will probably have to wait for a while in order to
have a better idea of what my yearly income will be. However, I
thought that there was a one time offer that will allow me to spread
the tax owed over a two year period. 2011 and 2012, I think. Not
true?

True. The income from 2010 conversions from traditional to Roth IRAs are,
by default, recognized half in 2011 and half in 2012. You can choose
to recognize all the income from all of your 2010 conversions in 2010
instead.
 
W

Wallace

Jane said:
I do understand. I will probably have to wait for a while in order to
have a better idea of what my yearly income will be. However, I
thought that there was a one time offer that will allow me to spread
the tax owed over a two year period. 2011 and 2012, I think. Not
true?

True. But I believe that at some point down the road, withdrawals from
Roths will not be entirely tax free. Place your bets: am I right or wrong?
How old are you? How much will you have in your Roth after they become
taxable? What will your income be at that time? I have no idea how to
evaluate this. But, I have decided, for me, not to convert. I may very
well donate my IRA to charity at some future time, anyway.
 
P

Phil Marti

I do understand.  I will probably have to wait for a while in order to
have a better idea of what my yearly income will be.  However, I
thought that there was a one time offer that will allow me to spread
the tax owed over a two year period.  2011 and 2012, I think.  Not
true?
True, but keep in mind the old saw, "Be careful what you wish for."
Your decision on the split is irrevocable.

It's not the tax, but the income, that's split between 2011 and 2012.
That means it will be taxed at the rates in effect for those years,
not the current rates.

The good news is that you can wait until October 15, 2011 to make this
decision. By that time we should have a better handle on what 2012
rates will be.

Phil Marti
Clarksburg, MD
 
R

removeps-groups

True. But I believe that at some point down the road, withdrawals from
Roths will not be entirely tax free. Place your bets: am I right or wrong?
How old are you? How much will you have in your Roth after they become
taxable? What will your income be at that time? I have no idea how to
evaluate this. But, I have decided, for me, not to convert. I may very
well donate my IRA to charity at some future time, anyway.
We might see a section 121 exclusion for Roth accounts.
 
H

hr(bob) hofmann

True, but keep in mind the old saw, "Be careful what you wish for."
Your decision on the split is irrevocable.

It's not the tax, but the income, that's split between 2011 and 2012.
That means it will be taxed at the rates in effect for those years,
not the current rates.

The good news is that you can wait until October 15, 2011 to make this
decision.  By that time we should have a better handle on what 2012
rates will be.

Phil Marti
Clarksburg, MD
If you elect not to include the conversion income in 2010, must you
split the income equally between 2011 and 2012, or can you declare it
all in 2011 if you wish?
 
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A

Arthur Kamlet

If you elect not to include the conversion income in 2010, must you
split the income equally between 2011 and 2012, or can you declare it
all in 2011 if you wish?


The default is to recognize the 2010 conversion distribution half
in 2011 and half in 2012.

You have to elect to recognize it all in 2010.

The only way to recognize a 2010 conversion all in 2011 is to
die in 2011, not a recommended tax measure.


There's no way to recognize that conversion 30/70 or any other
than a 50/50 ratio.
 
J

JoeTaxpayer

If you elect not to include the conversion income in 2010, must you
split the income equally between 2011 and 2012, or can you declare it
all in 2011 if you wish?
The choice is
(a) 100% claimed on 2010 return or
(b) 50% on '11 return & 50% on '12 return
 
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