. A Roth conversion may make sense if you think your marginal tax rate will be higher in retirement than currently. And no, it doesnt matter if you file jointly for the year. Roth Getty Images. The tax would apply to the converted balance since it represents fully tax deferred funds. Thats an excellent strategy Ed, Id even say its an example of the best example since youre minimizing the tax bite. But this isnt speculation, the numbers back it up. You stated that the five year rule ONLY applies to the EARNINGS on Roth funds received on either new contributions or CONVERSION amounts. The answer to this question depends on a few factors, including your current and future tax rates, investment goals, and time horizon. But please check with your tax preparer to make sure. Hi Jill The pro-rata rules have to do with taking early distributions from an IRA. I have been reducing my Traditional IRA by withdrawing about $10,000 each year and moving it to a taxable account without having to pay any taxes. Hello Jeff, FICA taxes are due on earned income only. And as to where to report the conversion, if you cant find specifically where, you should give TurboTax a call. When Would YouNotWant to Convert to Roth IRA? Everything under the higher bracket still only incurs that lower brackets rate (and funds over the higher bracket-mark *would have* incurred that previous rate, at the very least . So maybe it isnt such a good idea to assume that TAXABLE income will rise with age. Reason for another conversion is to bring the AGI to the limit of the our tax bracket(we have the numbers for various items). I see in your response to other comments you cannot have two rollovers in the same calendar year. Youll report the conversion to the IRA onForm 8606when you file your income taxes for the year of the conversion. Im wanting to isolate those nondeductible contributions and move them to a ROTH to tidy things up. 2) Youve opened up a bit of a can of worms with this question. The trustee is going to have to report this the way it exists, and that probably cant be changed after 12 years. Roth IRA conversion Roth Roth conversions are when you move money from a traditional retirement account into a Roth account. These are not in any sort of IRA or retirement plan. Thank You, Jim D. Hi Jim The answer is yes on both counts. In 2022, Roth IRA contributions were capped at $6,000 per year, or $7,000 per year if you were 50 or older. Hi Jared Yes, and its a good strategy to minimize the tax liability. The 60-day rollover rule allows you to move your IRA funds without incurring any taxes or penalties. You can do the conversion into the existing Roth, but each conversion starts its own 5 year rule clock, so you wont change the outcome, no matter what Roth account you do the conversions into. Hi Ben Whats happening is if you roll all of your existing IRAs into your employers 401k plan, it will remove them from the pro-rata rules. I want to convert/rollover this IRA to an existing ROTH IRA. Only someone who knows the details of your tax situation can tell you if the conversion will truly be a benefit to you.
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