Taxes on Roth Conversion
If an individual converts part of their IRA to a Roth in 2010 will the conversion be taxed at the 2010 Tax Rates or will it be taxed at the 2011 Tax Rates?
Can an individual convert part of their IRA and have it taxed at the 2010 Tax Rates and then make a second conversion and have the amount of the 2nd conversion Taxed 50% in 2011 and 50% in 2012?
Thanks in advance for your insight and advice!!
Permalink Submitted by Edward Czapor on Wed, 2010-02-10 18:52
The income from a 2010 conversion will be taxed 50% in 2011 and 50% in 2012 unless you opt out of this default and elrct to have it all taxed in 2010. It does not matter how many individual converdions there are, they must all either be deferred to 2011 and 2012 or all taxed in 2010. You cannot combine the two options. If spouses both have IRAs to convert they each can make their own different election allowing all three years to be used for conversion.
Permalink Submitted by steve harper on Wed, 2010-02-10 19:33
Thanks for the clarification.
My follow up question would then relate to a person who converted in 2010 and elected to pay tax in 2010. Would the amount converted be added to 2010 income and taxed at 2010 rates? The reason I ask is the following statement was in an email I read: “The taxes on the Roth conversion will be taxed at the tax rate in the year you pay the taxes, not the year you converted.” I am assuming this applies only if you pay the 50% conversion in 2011 and the 50% in 2012 NOT if you convert in 2010 and elect to pay in 2010.
Permalink Submitted by Alan Spross on Wed, 2010-02-10 19:41
Yes, you have it right.