Roth IRA Conversion
I contributed 5500 to a Traditional IRA in the 2016 calendar year (non-deductible, from post-tax earnings in Ireland and $0 in that account before the transfer), and then converted that entire balance to a Roth IRA in the 2016 calendar year. I did not have any taxes withheld at the point of conversion, thinking there should be none as these were non-deductible in the first place. But now I’m wondering if I did the right thing.. should I have paid taxes on the converted amount?
Permalink Submitted by Alan - IRA critic on Sat, 2017-01-14 18:11
No, in most cases it is not desirable to pay taxes from the IRA distribution since that money does not end up converted and you will still owe tax and penalty on it. Even more so if the conversion is not even taxable. If you have any pre tax TIRA balance other than this contribution, the conversion will be mostly taxable. Another issue – you must have earned income to make an IRA contribution and any income excluded under the foreign earned income exclusion does not count as earned income. Therefore, you will need to have earned income that is NOT excluded in order for the TIRA contribution to be allowed.
Permalink Submitted by Jon Czernel on Sun, 2017-01-15 11:20
Thanks Alan. I had no other TIRA contributions in 2016… however I will need to look into my actual earned incomed in 2016 this may be an issue…