Re: Roth IRA conversion

From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Roth IRA conversion
Date: Tue, 6 Oct 1998 15:33:33 -0400

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>I understand that the taxes on a Roth IRA conversion are calculated based on
>the value of all IRAs at the time of conversion. 

Uh, not quite.

(1) Tax-wise, an IRA->Roth conversion is simply a distribution
    from an IRA, but with the 10% early withdrawal penalty waived
    (and for 1998 only, the option to spread the taxable income 
    from the distribution out over four years).
(2) Because of (1), the taxable part of any conversion is computed 
    just like any other IRA distribution.
    (a) If you have never made a non-deductible contribution
        to a traditional IRA, the total amount of the conversion
        will be taxable.  The value of your IRAs is irrelevent.
    (b) If you have made a non-deductible contribution to a
        traditional IRA, you'll use Form 8606 to determine
        the taxable amount of the conversion.  That amount
        will be based on the amount of the conversion, the
        total value of your traditional IRA accounts, and the
        amount of non-deductible contributions you've made
        over the year.
(3) Existing Roth IRAs are also irrelevent for this calculation.

Rich Carreiro
rlcarr@animato.pn.com
P5-100/RedHat Linux 4.1

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