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2010 Roth conversion review
Old 04-12-2013, 12:04 PM   #1
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2010 Roth conversion review

With the final tax payment due soon on tIRA to Roth conversion in 2010, I decided the review the cost. In thousands and round numbers:

tIRA value: $400
Converted: all
Tax paid on conversion: $34 (8.5%)
Change in IRA value since conversion: +$150

Bunching deductions helped lower the tax rate. With hindsight, for a tIRA mostly in equities 2010 was a great time to convert. By deferring tax payment about 3 years, there was additional time for investment returns, plus inside the Roth the boost in stock prices since 2010 is all tax-free.
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Old 04-12-2013, 12:32 PM   #2
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I don't get how you could've only paid 34K tax on a 400K conversion. I understand that you were able to split it between 2011 and 2012, so that's $200K/yr. If you were able to deduct $50K off of that each year, I still come up with about $30K (35K if single) tax each year, or 60K total.
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Old 04-13-2013, 12:35 PM   #3
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I did the exact same thing in 2010 but I only converted 40 thousand. I had to pay 6000(15%) split evenly between 2011 and 2012 which I just payed. I did that because I was in the 15% nominal bracket in 2011 and 2012 because I "semi retired" and my income was small enough.

The only thing I can think of is that the OP had significant deductions in 2011 and 2012 to bring the tax liability way down. Unfortunately (though I prefer fortunately) because I live way below my means and have no mortgage or any kind of debt we (wife and I) can only use the standard deductions.
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Old 04-13-2013, 12:42 PM   #4
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OP might have had some after tax and/or non-deductible contributions in the tIRA.

-gauss
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Old 04-13-2013, 12:59 PM   #5
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More than just what's been mentioned can offset the conversion income, for example, there are also business losses. I suppose bunching into 2011 and 2012 means more taxes in 2010 and 2013, but OTOH that's the purpose of bunching: use it when it works best, such as when things like IRA conversion would otherwise push up the marginal rate.

Did anyone else do a bulk conversion to Roth in 2010 and spread out the tax bite?
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Old 04-13-2013, 12:59 PM   #6
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TIRA-to-Roth conversions may be the best reason I can think of to own lots of rental property.
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Old 04-13-2013, 03:09 PM   #7
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Ok, so you had far more losses and deductions than I do. I had about the same in a tIRA and knew I'd still have some wages and an exit package in 2011 so I just took smaller conversions each year and didn't defer the tax. The timing and execution sounds like it was perfect for you.
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