Permalink Submitted by tomd37 on Fri, 2009-09-04 13:48
I believe you have two choices; 1) pay the tax all in 2010 or 2) pay one-half the tax in each of 2011 and 2012. As I understand the law it cannot be spread over the three years as you mention. I’d wait for Alan S. to respond with specific information.
Permalink Submitted by Samuel Critz on Fri, 2009-09-04 14:42
Would it be possible to set up two Roth IRAs and pay the taxes on one in 2010 and then the other in 2011 and 2012? Or would the IRS look at the aggregate done in 2010? We could then control the 1/3 and 2/3 and spread out over the three years.
Permalink Submitted by Alan Spross on Fri, 2009-09-04 21:27
A specific taxpayer must make the same deferral decision on all 2010 Roth conversions, no matter how many accounts they have. However, if taxpayer is married and spouse also has IRA accounts, one spouse could elect to report their conversions in 2010, and the other spouse could defer to 2011 and 2012.
Permalink Submitted by s koy on Wed, 2009-09-16 02:43
Am I understanding what I read below that in 2010 choosing to convert iras to roths is either an [b][color=#BF0000]ALL[/color][/b] or [b][color=#BF0000]nothing[/color][/b] proposition for any specific taxpayer? For 2009, may we elect to convert just some of our accounts for conversion?
We are 62 and married. In 2008 and early 2009 we rolled over all of our 403bs except for one annuity into iras. We have had deductible iras in the past because of our earlier lower incomes. Do we include the 403b (now ira) contributions along with previous nondeductible ira contributions to derive at the percentage at which any roth conversions are to be taxed?
The conversion rules seem complicated. I’d appreciate any ideas, thoughts and/or counsel about roth conversions. Thank you.
Permalink Submitted by Alan Spross on Wed, 2009-09-16 03:01
No, the “all or nothing” only refers to using the 2 year deferral for 2010 conversions or opting out and reporting the conversion in 2010. The same decision must be made for all conversions a taxpayer does in 2010. But this has nothing to do with how much is converted. You can convert any amount you please and can convert as many different times as you please. In fact, a full conversion of all your TIRAs will often inflate your tax bracket even with the two year split on reporting the conversion income.
With respect to your non deductible contributions to TIRAs in the past, you should have reported them on Form 8606 for each year you made them. Any conversion or distribution you take will then have a pro rated tax free amount that reflects the proportion of your total TIRA balance that reflects non deductible contributions. Having rolled over the 403b accounts, the % of basis is now much less than it was before the 403b rollovers.
The rules about Roth conversions are not so complicated, it’s the tax planning and future tax rate projections that you need to do that gets very subjective and makes the AMOUNT that you should convert a very complicated decision. You can just as easily convert too much as too little, and the effectiveness of your decision cannot be fully known for years. That’s what’s tough.
Permalink Submitted by tomd37 on Fri, 2009-09-04 13:48
I believe you have two choices; 1) pay the tax all in 2010 or 2) pay one-half the tax in each of 2011 and 2012. As I understand the law it cannot be spread over the three years as you mention. I’d wait for Alan S. to respond with specific information.
TomD
Permalink Submitted by Samuel Critz on Fri, 2009-09-04 14:42
Would it be possible to set up two Roth IRAs and pay the taxes on one in 2010 and then the other in 2011 and 2012? Or would the IRS look at the aggregate done in 2010? We could then control the 1/3 and 2/3 and spread out over the three years.
Permalink Submitted by Alan Spross on Fri, 2009-09-04 21:27
A specific taxpayer must make the same deferral decision on all 2010 Roth conversions, no matter how many accounts they have. However, if taxpayer is married and spouse also has IRA accounts, one spouse could elect to report their conversions in 2010, and the other spouse could defer to 2011 and 2012.
Permalink Submitted by s koy on Wed, 2009-09-16 02:43
Am I understanding what I read below that in 2010 choosing to convert iras to roths is either an [b][color=#BF0000]ALL[/color][/b] or [b][color=#BF0000]nothing[/color][/b] proposition for any specific taxpayer? For 2009, may we elect to convert just some of our accounts for conversion?
We are 62 and married. In 2008 and early 2009 we rolled over all of our 403bs except for one annuity into iras. We have had deductible iras in the past because of our earlier lower incomes. Do we include the 403b (now ira) contributions along with previous nondeductible ira contributions to derive at the percentage at which any roth conversions are to be taxed?
The conversion rules seem complicated. I’d appreciate any ideas, thoughts and/or counsel about roth conversions. Thank you.
Permalink Submitted by Alan Spross on Wed, 2009-09-16 03:01
No, the “all or nothing” only refers to using the 2 year deferral for 2010 conversions or opting out and reporting the conversion in 2010. The same decision must be made for all conversions a taxpayer does in 2010. But this has nothing to do with how much is converted. You can convert any amount you please and can convert as many different times as you please. In fact, a full conversion of all your TIRAs will often inflate your tax bracket even with the two year split on reporting the conversion income.
With respect to your non deductible contributions to TIRAs in the past, you should have reported them on Form 8606 for each year you made them. Any conversion or distribution you take will then have a pro rated tax free amount that reflects the proportion of your total TIRA balance that reflects non deductible contributions. Having rolled over the 403b accounts, the % of basis is now much less than it was before the 403b rollovers.
The rules about Roth conversions are not so complicated, it’s the tax planning and future tax rate projections that you need to do that gets very subjective and makes the AMOUNT that you should convert a very complicated decision. You can just as easily convert too much as too little, and the effectiveness of your decision cannot be fully known for years. That’s what’s tough.