Go to Jeff Salisbury LWGate Home Page.From: Christy Rohrig <christy@netwiz.net>
Subject: Roth conversion taxes.
Date: Tue, 20 Oct 1998 08:47:06 -0700
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Hello Scott,
You are correct that you are taxed on the amount you convert and that 1998 is
the only year that lets you spread that out over 4 years. Here's how I would
decide in your situation. I'll make the assumption that you convert $20,000
either year, though hopefully the amount would increase between now and 1999.
$20,000 1998 conversion 1999 conversion
1998 tax $5000 @ marginal rate (28% or more)
1999 tax $5000 @ marginal rate (15% ?) $20,000 portion at 15%->28%
2000 tax $5000 @ marginal rate (15% or more)
2001 tax $5000 @ marginal rate (15% or more)
Remember that the taxes vary based on your AGI. So, for 1997 if you're single,
the taxes were
15% on amounts up to $24,649
28% on amounts from $24,650 - $59,749
31% on amounts from $59,750 - $124,649
36% on amounts from $124,650 - $271,049
39.6% on amounts from $271,050 and above
I'd look at the amount that would be taxed at 28% in the 1999 conversion and if
it's more than $5000 (the 1998 amount), I'd convert in 1998.
Good luck,
- -Christy
p.s. I'm in a worse situation, I converted $X on July 21 which is now about
$(0.85*X) :-(. Do I take advantage of the 4 year spread which means that some
would be taxed at 28% and most at 31% or do I unconvert and convert in Jan 1999
meaning all would be taxes at 31%. At this point I'm waiting to December 27th or
so to decide. I'm, figuring if the value is $(0.95*X) it's probably worth
spreading over the 4 years. I will run numbers then, but am open to comments on
the time value of money etc. Cheers!
- -
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