IRA Conversion w/NOL
Considering a conversion from an IRA to a Roth in 2010. Have huge NOL losses for y/e/2009 which will carryforward to 2010.
To what does the market value of the IRA get added to determine the proper tax rate to be reviewed in order
to figure out whether a conversion makes sense??
How if at all does the AMT issue get factored in?
Steve
Permalink Submitted by Alan Spross on Tue, 2010-09-28 23:26
Very generally, the NOL enables you to offset more of your conversion and you could therefore convert more before the AMT kicked in. The AMT exposure is highly dependent on the details of your situation, and is more common in high tax states (income and property taxes). You get an AMT flat dollar exemption that helps at the lower income levels and phases out at higher levels. Therefore, the analysis gets highly complex and all you can do it to use tax software to test different scenarios.
But the NOL probably means that you have a unique conversion opportunity. You also need to determine whether you are better off with the two year deferral or not. Congress has not even passed the 2010 AMT patch to this date. With all the different scenarios, it is tough to plan, but remember that you can negate a conversion by a recharacterization, a rare opportunity to do retroactive tax planning.
Permalink Submitted by W Dobroski on Tue, 2010-10-19 22:22
FYI – I’m not sure of very recent versions of other Tax SW but I found most came up short when
I first dealt with Conversions and using NOL.
The accounting industry SW – Drake Software – does a great job of handling NOL (incl future yrs) and
conversions / AMT. It’s a bit pricey (approx $300), and has a bit of a learning curve but if you’re going to
deal with multiple yrs of conversions using NOL carryforward, I would strongly recommend……esp
since you can run “what-if” scenarios