Income Taxes on Roth conversion
When doing a Roth conversion is the amount of the conversion added to your present income and is taxed at current income tax rates or is there a new law that says the conversion is taxed at a special rate? I had a person tell me that there is a new law that has a special tax rate for conversions. Thanks for your help.
Permalink Submitted by tomd37 on Tue, 2014-10-28 21:02
My understanding is that the converted amount is reported to you on a 1099R and becomes part of your AGI and is taxed at the same rate as all your other income after applying exemptions and deductions. I have not heard of any special tax treatment. Tom D.
Permalink Submitted by Alan - IRA critic on Tue, 2014-10-28 21:08
Don’t know what they were referring to. Conversion income is taxed like other ordinary income, but conversion income will increase AGI and could expose the taxpayer to the surtax on investment income which kicks in at either 200k or 250k modified AGI. This provision started Jan, 2013 to help fund Obamacare so is relatively new. Note that the conversion income is NOT investment income so is not subject to the NIIT, but a conversion could kick AGI over the limits and expose actual investment income to the surtax.