IRA vs Roth IRA
Hello,
I am a 64 y/o woman who will have to retire early at age 65, rather that at age 66. My social security monthly amount will be $869.00. I have some cash, stocks & an IRA.
I contributed $6000 into my IRA for 2011. The current total amount that I have in my IRA is about $25.000. I just heard that if my income will be over $25,000 per year when I retire, part of my social security will be taxable up to a maximum of 85%. In a case like this I was told that it would be better to have a Roth IRA, rather than a regular IRA.
I know nothing about this and would appreciate any suggestions you may have for me.
I Thank You in advance for your help.
S.
Permalink Submitted by Suzanne Cubbison on Sat, 2012-03-03 00:51
Hello TomD,
Thank you for your response. Forgive my ignorance, but when I retire and have no salary what exactly is considered “income”?
Thanks, again,
S.
Permalink Submitted by Suzanne Cubbison on Sat, 2012-03-03 06:20
Thank you Tom D.
Permalink Submitted by Barbara Ohlinger on Mon, 2012-03-05 16:52
When you convert a traditional IRA to a Roth IRA is the whole amt converted taxable or only the capital gains that accrued. Since tax has already been paid on the initial contribution into the regular IRA it seems there would be no tax on the conversion only tax on the interest or capital from the contributions into the regular IRA.
Permalink Submitted by Alan Spross on Mon, 2012-03-05 16:58
Usually tax has NOT been paid on traditional IRA contributions since the taxpayer got a deduction for it. If they did not get a deduction, then they file Form 8606 to report the contribution as non deductible. When the conversion takes place Form 8606 is also used to report the conversion and that form calculates the taxable amount. The proportion consisting of deducted contributions and gains is the taxable porportion.
For a low income taxpayer, conversion only makes sense if they can convert with no tax, ie the small conversion would be limited to the amount needed to bring taxable income from negative to -0-.