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Old 12-23-2009, 12:44 PM   #21
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Dave, does that mean you have no more TIRAs (deductible or non-deductible) after the conversion? I'm kind of new to this loss thing but what I've read suggests that you can get credit for the loss as a misc deduction subject to a 2% of AGI floor so if you have a high income, you probably won't get anything back for the loss.
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Old 12-23-2009, 12:48 PM   #22
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Quote:
Originally Posted by Finance Dave View Post
I'm planning to do this, and just now did the analysis. I need some advice please.

I have a non-deductible traditional IRA (paid into it with after-tax money because my income is too high), and so does my wife. We want to convert in 2010. The complexity is that her's lost money, so she'll show a loss, and mine has gained. Can I net the two and only pay taxes on the net gain? I've provided numbers below.

Am I missing anything?
You can't deduct losses in an IRA because you are not the reporting gains,
that would be having your cake and eat it too.
You can undo it and then contribute the full amount again, but I don't think it's worth it.
TJ
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Old 12-23-2009, 12:55 PM   #23
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You can't deduct losses in an IRA because you are not the reporting gains,
that would be having your cake and eat it too.
You can undo it and then contribute the full amount again, but I don't think it's worth it.
TJ

TJ....apparently you can deduct losses if you dispose of all e.g. your TIRAs.
see here Deducting Losses on Your IRA Investments

I think the discussion about how the 2% works is misleading. In the article, I read it as a cap (max) but what I've read in other places and by looking at Sch A suggests it's a floor you need to exceed before deducting anything.
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Old 12-23-2009, 03:58 PM   #24
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@kaneohe: thanks for the link. I am also interested in this topic, and when they refer to schedule A 2% limit, I am pretty sure they mean you only get to deduct whatever exceeds that 2% limit...

Now, does the conversion from a non-deductable TIRA to Roth count at withdrawal from TIRA to which these rules apply?
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Old 12-23-2009, 06:41 PM   #25
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smjsl..........as I mentioned above, this subject is new to me so best to confirm...
I think I recently read something to the effect that the conversion from any TIRA counts as long as you then no longer have any TIRAs after the conversion. This loss is meant to be the final loss when you "dispose" of either all your TIRAs or Roths but not just a partial conversion that leaves some residuals. I would confirm by asking at fairmark.com in the retirement sub-forum. There have been similar threads there recently.
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Old 12-23-2009, 09:38 PM   #26
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smjsl.......here's something related to your question
Fairmark Forum :: Other Tax Questions :: TIRA converted to Roth IRA in 2009
(for all I know, might even be you). Looks like I overlooked one key point.......in the referenced thread, it sounded like you needed to have basis (from non-deductible TIRA) to be able to deduct loss. Another important point that needs researching is whether conversion to Roth constitutes the liquidation needed to take the loss deduction.
The linked thread suggests no but I'm pretty sure I saw something recently that said otherwise.....provided there was no TIRA left after conversion. Need further work on this point.

This might have been what I saw
http://www.edslott.com/forum/viewtopic.php?f=1&t=3628
see the comment by alan oniras
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Old 12-24-2009, 08:48 AM   #27
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Thanks kaneohe. The 2% AGI limit is too bad... If non-deducatable TIRA had gains, they would be taxed, but in case of loss, you don't get any credit for them due to the 2% of the AGI floor.
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Old 12-25-2009, 09:06 PM   #28
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I'm thinking of rolling over all of our deductible IRAs into our business 401K plan this year. I've been doing that anyway just to consolidate the accounts and make them easier to manage.

Then the only IRAs we have left will be the non-deductible IRAs and I'll convert those to Roths.

If anyone sees any flaws in this plan, I'd appreciate any comments.
Sounds like what we are in the midst of doing...Good luck...
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Old 12-26-2009, 03:01 PM   #29
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Quote:
Originally Posted by teejayevans View Post
You can't deduct losses in an IRA because you are not the reporting gains,
that would be having your cake and eat it too.
You can undo it and then contribute the full amount again, but I don't think it's worth it.
TJ
Ok, now I'm more confused, but that's probably my own fault.

If I cashed out just MY IRA (not my wife's also), I would report the gain, right? I'm just wondering if I can net the losses on one with the gains on the other.

Let me ask it a different way...if you convert a TIRA to a Roth in 2010 and there are gains, do you report them at time of conversion, or when you eventually withdraw the money? If it's upon eventual withdrawal from the Roth, then that's fine too.
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Old 12-26-2009, 03:06 PM   #30
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Originally Posted by kaneohe View Post
Dave, does that mean you have no more TIRAs (deductible or non-deductible) after the conversion? I'm kind of new to this loss thing but what I've read suggests that you can get credit for the loss as a misc deduction subject to a 2% of AGI floor so if you have a high income, you probably won't get anything back for the loss.
Correct, I would have no more TIRAs afterwards. Our income is pretty high.

One thing maybe folks can clarify...do you add back 401k contributions to get to AGI for that purpose? In other words, assume we make $180k gross, but contribute $32k to 401k pre-tax....is our AGI then $148k?

I get confused between AGI and MAGI....maybe someone can clarify.

Thanks,

Dave
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Old 12-26-2009, 03:10 PM   #31
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Quote:
Originally Posted by Finance Dave View Post
Ok, now I'm more confused, but that's probably my own fault.

If I cashed out just MY IRA (not my wife's also), I would report the gain, right? I'm just wondering if I can net the losses on one with the gains on the other.
There is no 'gain' in an IRA. What is withdrawn (or converted) from a TIRA is taxed as income.

Quote:
Let me ask it a different way...if you convert a TIRA to a Roth in 2010 and there are gains, do you report them at time of conversion, or when you eventually withdraw the money? If it's upon eventual withdrawal from the Roth, then that's fine too.
Withdrawals from a Roth are not taxed.
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Old 12-26-2009, 03:10 PM   #32
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I still can't figure out if it's worth doing in my case.

My wife and I each have a Rollover IRA with our 401K/403B proceeds in them. (Most of my working life was as an active duty military guy before the days when military people could participate in TSPs and similar programs. My wife didn't work that many years and when she did she had a modest income. Nevertheless, we put as much as we were legally able to into our 401Ks/403B's.) In addition, I made after tax contributions during some years.

If we were to convert everything in one fell swoop it would kick us out of the 25% bracket and cost us $70K in federal taxes - a non-starter. So, I am looking at using the "headroom" within our tax bracket to convert some each year. But, at age 64/62, we wonder if it's really worth the hassle.

Any opinions/suggestions welcomed.
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Old 12-26-2009, 03:24 PM   #33
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There is no 'gain' in an IRA. What is withdrawn (or converted) from a TIRA is taxed as income.



Withdrawals from a Roth are not taxed.
Thanks Khan, starting to see it now. I'm confusing gains with income...and using the wrong words. I'm trying to minimize my "income" upon the conversion by netting two accounts.
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Old 12-26-2009, 05:27 PM   #34
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One thing maybe folks can clarify...do you add back 401k contributions to get to AGI for that purpose? In other words, assume we make $180k gross, but contribute $32k to 401k pre-tax....is our AGI then $148k?

I get confused between AGI and MAGI....maybe someone can clarify.

Dave
Dave.....see the worksheet on p. 62. I think in your example your "gross" income is 180K.....the number you would brag about on the street or in a bar. Your federally reported gross income for tax purposes is 148K (your salary was reduced). Your AGI is also 148K as is your MAGI. You should double check on the worksheet to be sure. Interesting that if you deducted 10K for an IRA contribution to get new AGI of 138K, you'd have to add it back to get MAGI of 148K but you don't do that w/ the 401K contribution.
http://www.irs.gov/pub/irs-pdf/p590.pdf
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Old 12-26-2009, 05:44 PM   #35
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If I cashed out just MY IRA (not my wife's also), I would report the gain, right? I'm just wondering if I can net the losses on one with the gains on the other.
Dave,

Since you have non-deductible IRAs (that's all you have , right?), you would report the gains/earnings or whatever you wish to call them over your basis
(non-zero since the IRA was non-deductible) if you cashed them out or if you converted to a Roth. You can't net the losses directly against the gains since they (losses) need to be reported on Sch A as a misc deduction subject to a 2% of AGI floor. You can't take the loss unless you have basis in the IRA and you have disposed of ALL of your TIRAs (or Roths) Deducting Losses on Your IRA Investments
Since your AGI is so high it is likely that you won't be able to deduct the loss at all since the 2% of AGI likely exceeds the loss.
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Old 12-26-2009, 05:53 PM   #36
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I still can't figure out if it's worth doing in my case.

My wife and I each have a Rollover IRA with our 401K/403B proceeds in them. (Most of my working life was as an active duty military guy before the days when military people could participate in TSPs and similar programs. My wife didn't work that many years and when she did she had a modest income. Nevertheless, we put as much as we were legally able to into our 401Ks/403B's.) In addition, I made after tax contributions during some years.

If we were to convert everything in one fell swoop it would kick us out of the 25% bracket and cost us $70K in federal taxes - a non-starter. So, I am looking at using the "headroom" within our tax bracket to convert some each year. But, at age 64/62, we wonder if it's really worth the hassle.

Any opinions/suggestions welcomed.
different bracket, same issue
Fairmark Forum :: Retirement Savings and Benefits :: Should I convert some Trad. IRA to Roth or not

just found this....probably more than you'll ever want to know but seems useful
https://www.bernstein.com/CmsObjectP...oRiches_WP.pdf
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Old 12-26-2009, 10:14 PM   #37
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I get confused between AGI and MAGI....maybe someone can clarify.
For most people they are the same, MAGI is just AGI with some
deductions added back in.
TJ
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Old 12-27-2009, 10:49 AM   #38
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If we were to convert everything in one fell swoop it would kick us out of the 25% bracket and cost us $70K in federal taxes - a non-starter. So, I am looking at using the "headroom" within our tax bracket to convert some each year. But, at age 64/62, we wonder if it's really worth the hassle.

Any opinions/suggestions welcomed.
Since there is almost no hassle it seems like a good idea to me. I am doing what you propose, starting this year. It would have optimal to begin earlier, but I didn't want the extra income on my 1040. My goal is not necessarily to convert it all, but to knock it down. In talking to my broker, I realize that the really dynamic feature of these conversions is when you can do some when markets are way down. I wish I had been attuned to this last March. So my 2009 conversion is cash. In 2010, if there is a smackdown, I will convert stock of a well financed company with some volatility. If it continues downward, there is always recharacterization.

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Old 12-29-2009, 05:16 PM   #39
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See the link to the 12/23 article from the WSJ why-it-may-pay-to-convert-to-a-roth-ira: Personal Finance News from Yahoo! Finance

Interesting point about the impact of taxes, especially to partial conversions. There is a table in the article from TR Price. I'm not sure I understand the table, specifically in the example of using taxable funds to pay taxes on the conversion.

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Old 12-29-2009, 08:17 PM   #40
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I just did my conversion for 2009, since by a financial fluke (I hope it's a fluke ) I'm only in the middle of the 15% bracket this year. In my case it's a straight converstion from a tIRA. I don't have any non-deductible money in my IRAs. I retired before anybody turned me on to that strategy.

It was a really simple process, and Vanguard was totally diligent about making sure I understand the tax and income implications. Not sure how difficult it would be to recharacterize, but I think if you held on to all the appropriate paperwork it wouldn't be too hard.
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