Go to Jeff Salisbury LWGate Home Page.From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Roth IRA conversion
Date: Tue, 6 Oct 1998 15:33:33 -0400
Previous Article (by Subject): RE Asset Allocation v5 #54 "Richard A. Bauer"
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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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