planning IRA to Roth IRA conversion in 2010?

[tmm99]

Anyone planning the IRA to Roth IRA conversion in 2010?

I am more than 5 years away from my retirement (more like 10+) and I have been contributing to non-deductible IRA's in the last two years. I have also rolled over one of my old 401K's (small with the least gain) to deductible IRA.

I was just wondering if anybody else was thinking of doing the conversion in 2010.

Fortunately or unfortunately, if things keep on going the way they are, there will be close to zero tax implications due to the economic downturn in the last couple of years :-|

 

[JustNtime]

OK - I'm starting the process of beginning to think about it... - OK

I had planned to top off my tax bracket with Roth conversions during my early retirement years, buttttt after 7 years I'm still in the planning stage for that strategy. I'm really leaning strongly toward converting one IRA s&p fund this year and a brokerage fund + TSP next year. The delayed taxes look like a good deal next year, but I'm a bit concerned with 'sunset provisions', (unknown 11/12 tax rates and income brackets). Sooo, I'm definitely thinking about it.

BTW: With the market volatility over the last seven years, conversion during the peaks would have been costly or required recharacterization. Obviously, if I could of picked the lows, I'd be sitting pretty now and could just forgittabotit.

 

[samclem]

Nope, I'm not doing any TIRA to Roth conversions. Right now I'm concentrating on using all the "headroom" between my income and the 25% bracket to sell after-tax assets at the 0% cap gains rate. That opportunity is set to expire at the end of 2010, so I'm doing it while I can.

Most of our IRAs are in Roth accounts already (we converted years ago). I'm probably not going to convert everything at any rate--having some in TIRAs and some in Roth IRAs gives us some flexibility in the coming decades. In my opinion, it is possible the Roths won't remain tax free, so flexibility might be useful.

 

[Animorph]

I'm going to think hard about it, but I'll have to see what my tax situation is. DW could quit working in 2010 (or 2011 or 2012). I could actually start working part time within that time frame. Within a few years we should be down to zero earned income. That might be a better time, but I may not be able to convert as much as I would like before other taxable income kicks in. So maybe convert some...

 

[travelover]

I mentioned in another tread that I'm doing an after tax 401(k) to Roth conversion in 2010. Sweet deal.

 

[mn54]

I have not heard of other conversions besides the IRA to Roth IRA? How does the 401K conversion work? Can you also do a SEP IRA to Roth?

 

[teejayevans]

Anyone planning the IRA to Roth IRA conversion in 2010?

I am more than 5 years away from my retirement (more like 10+) and I have been contributing to non-deductible IRA's in the last two years. I have also rolled over one of my old 401K's (small with the least gain) to deductible IRA.

I was just wondering if anybody else was thinking of doing the conversion in 2010.

You understand that when converting to Roths, you can't just pick the
non-deductibles, IRS treats them all as 1 big IRA, see 8606 form.
TJ

 

[Maurice]

I was planning on doing so but the numbers just don't work for someone in my tax bracket in my state. I'd basically be paying ~45% tax on my IRAs.

I hope to convert at some future date when my income is lower and I'm not living in a high tax state.

 

[travelover]

I have not heard of other conversions besides the IRA to Roth IRA? How does the 401K conversion work? Can you also do a SEP IRA to Roth?

I can't speak to a SEP, but the magic words are "after tax contributions" for a tax free 401(k) conversion.

A Sweet Deal on Roth IRA Conversions - Kiplinger.com

 

[tmm99]

You understand that when converting to Roths, you can't just pick the
non-deductibles, IRS treats them all as 1 big IRA, see 8606 form.
TJ

You are right. You can't pick and choose just non-deductible IRAs for the conversion. That is why I only rolled over one old 401K to a deductible IRA. I didn't roll over the rest of my 401K's because they have too much gain for me to want to consider for the Roth IRA conversion.

All I have in the IRAs currently are this one rolled over tax deferred IRA from the old 401K, and non-deductible IRAs that I opened the last two years (and I am adding another $6000 this year) and I am converting them all to Roth in 2010. Like I said, the tax implication of the conversion is probably small because you don't pay taxes on after-tax IRAs (except for the gain) and you pay full tax on the rolled over before-tax IRA, but I picked the 401K with the least gain to be rolled over to a tax-deferred IRA, so all and all, there isn't much tax implication when it's time for conversion (unless the market shoots up to the sky in the near future, but I doubt that will happen...)

 

[WilliamG]

Yes. We have some inherited money and did some conversion this year and will do more in 2010. We are already using IRA for income toward living expenses, so will go ahead and pay taxes with automatic withholdings of IRA. Will use inherited money each year for portion of living expenses. Practical result: like depositing the inherited money in Roth, since would otherwise be withdrawing from IRA anyway.

 

[teejayevans]

but I picked the 401K with the least gain to be rolled over to a tax-deferred IRA, so all and all, there isn't much tax implication when it's time for conversion (unless the market shoots up to the sky in the near future, but I doubt that will happen...)

Just to be clear, there is no "gain" in the 401k, anything you take
out is taxed at your normal rate. There is no capital gains, etc, so if you
have 20K in your 401k which is now in an IRA, and you convert it, it will
pay taxes on the 20K. The pretax contributions and the dividends and
capital gains, etc all treated as normal income. This is why if you have
a choice, it's best to have bonds in your IRA and stocks in your taxable
account.
TJ

 

[tmm99]

Yeah, it's 8K total, so I pay tax on 8K. That's it. It was 13K at one point, but now it's only 8K. Still pretty low tax implication. Just imagine this will grow 10 fold by the time I retire!!! (That's what I am counting on...)

 

[bigla]

I am planning to convert some TIRA into a roth I set up for my grandkids education. It was the most practical way for me to do it because all of our extra $ is in our IRA's. This way when the kids (3 yrs old & 3 mos old) need money for education, it will be tax free.
Larry

 

[TooFrugal]

You understand that when converting to Roths, you can't just pick the non-deductibles, IRS treats them all as 1 big IRA, see 8606 form.

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.

 

[samclem]

If anyone sees any flaws in this plan, I'd appreciate any comments.

Are the choices and the costs within your 401K as good as the ones available to you in your TIRA? If so, you've got an unusually good 401K plan.

 

[TooFrugal]

Are the choices and the costs within your 401K as good as the ones available to you in your TIRA? If so, you've got an unusually good 401K plan.

It is an unusually good plan. In fact I made it myself. Well, actually the pension consulting firm I hired wrote it up based on my input and they take care of most of the paperwork. It is the plan that covers our own businesses, so it is pretty much tailor made for us.

 

[ziggy29]

I have one puny conventional rollover IRA with about $600 in it. I'll probably eat the $150 in taxes to convert it and roll it into an existing Roth next year just to simplify things.

 

[kaneohe]

I am planning to convert some TIRA into a roth I set up for my grandkids education. It was the most practical way for me to do it because all of our extra $ is in our IRA's. This way when the kids (3 yrs old & 3 mos old) need money for education, it will be tax free.
Larry

"because all of our extra $ is in our IRA's".............Larry, does this mean you are paying the conversion taxes from the TIRA? If so, that isn't usually advised tho you'd have to run your situtation thru some calculations to be sure.

 

[Finance Dave]

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.

My IRA
Basis = $14k
Current value = $18k
Gain = $4k

Wife's IRA
Basis = $3k
Current value = $2.5k
Loss = $.5k

If I can net them, gain is $3.5k.

Taxed at marginal rate of 28% = $980

Am I missing anything?

Thanks,

Dave

 

[kaneohe]

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.

 

[teejayevans]

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

 

[kaneohe]

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.

 

[smjsl]

@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?

 

[kaneohe]

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.