Would Roth Conversion disqualify for CARES stimulus payment?
Is it correct that a person with actual income of $52K plus a $55K Roth conversion in 2019 would be disqualified from the $1200 CARES stimulus payment? Since the Roth conversion is not actually new money coming in, it doesn’t seem fair for the conversion to make the person ineligible for the stimulus payment. Am I correct that the Roth conversion amount increases a person’s AGI and that the $1200 payment is based on a person’s AGI?
Permalink Submitted by Alan - IRA critic on Thu, 2020-04-23 04:46
Yes, the taxable portion (usually 100%) of a Roth conversion is included in AGI. However, the person will still qualify for another calculation using the 2020 tax return. Therefore, if AGI is held to 75000 for 2020, the person will still receive the 1200 payment, except it will be one year from now. Actually, for most people waiting an extra year is not as serious as the 55k conversion taking a large hit and it can no longer be recharacterized, therefore taxes on the conversion are now owed on “phantom value”.
Permalink Submitted by Mel Hartley on Thu, 2020-04-23 05:47
Thank you very much for your quick answer and helpful information. Your idea of keeping AGI for 2020 under $75K to qualify for the stimulus payment is a good one, though I’m thinking that additional Roth conversions this year while share prices are lower would probably give me a larger benefit in the long run than the $1200 payment. Yes, it’s painful to pay taxes based on a Roth value that is now considerably lower, however I trust that the stock market will recover at some point and I’ll be glad I did the conversions. Does anyone besides me think it would be more fair if the income determination for the stimulus payment did not include Roth conversion amounts?