Roth Conversion
I have a client you is thinking about converting his ira to a roth, meets all the requirments. He wants to know if it makes sense to pay taxes on this distribution from his ira. Also, is anyone using any type of software to illustrate whether a conversion makes sense or, if there is a crossover point?
Permalink Submitted by Al Fry on Sun, 2008-04-06 23:54
It usually does NOT make sense to convert to a Roth if one has to use the IRA to pay the taxes. May B-D websites have comparison software.
Permalink Submitted by Bruce Steiner on Mon, 2008-04-07 01:23
I use Microsoft Excel.
Permalink Submitted by Robert A. Bove on Tue, 2008-04-08 19:43
Thank you. I just want to make sure I understand this correctly. Let’s say I have a client who is going to take advantage of the 2010 conversion. He opens up a non deductbile IRA with $5,000 for 2008. In 2010 it’s worth $6000. In 2010 he converts to roth. He will only owe taxes on the $1,000? He can then spread the taxes out over 20011 and 2012.
Permalink Submitted by Al Fry on Tue, 2008-04-08 22:03
Yes, as long as he does not have any other IRAs.
Permalink Submitted by Robert A. Bove on Tue, 2008-04-08 22:07
What happens if he has $100,000 IRA held somewhere besides the one we just set up?
Permalink Submitted by Al Fry on Tue, 2008-04-08 22:11
The IRS says he only has one. They all must be aggregated, for tax purposes.
Permalink Submitted by [email protected] on Tue, 2008-04-08 23:35
Yep, what a load of poles our brain-dead government sold us with that non-deductible IRA. I got sucked in and contributed $2000 to one of those accounts for each of my wife and myself in 1997/98.
Didn’t realize that would mean for the rest of my life, once I started taking distributions, I would have to file the dastardly 8606 form. This year it reduced my taxable distributions by a whole $36. Whatta croc…!
When I made that one contribution, I thought I could simply distribute that one non-deductible account all at once. But no…! I gotta file that damn form and deduct a minuscule % of my distributions from the taxable amount forever and ever…. Sheeesh….!!!
Lemme see…. 15% of $36 is $5.40…. Would the Auditmeister come after me if I just forgettaboutit and overpay my taxes 5.40 a year…?
Permalink Submitted by Robert A. Bove on Wed, 2008-04-09 01:17
Maybe I’m missing something here. Let’s assume that all of his IRA’s were non deductible (obvisously he’s paid taxes on the money he used to fund these). Over 20 years he contributed 50K the account balance is now still 50K when he converts – no growth. Does he have to pay taxes again on the 50k when he converts?
Same example but they’re worth 60K when he converts, what does he declare as income?