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Running scenarios for possible Roth conversion
Old 04-29-2011, 07:07 PM   #1
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Running scenarios for possible Roth conversion

Based on some threads I've read on this site, I'm trying to run some scenarios (using 2010 Turbo Tax) to see whether to convert Traditional IRA monies to a Roth IRA, and, if so, how much, and what the tax implications will be, etc.

I have never withdrawn from my IRAs, so I'm not sure what code the 1099R will show. I'm over 59-1/2, so will it indicate a "Normal Distribution" or what?

omni
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Old 04-29-2011, 07:17 PM   #2
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That is what mine have said.

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Old 04-30-2011, 11:46 AM   #3
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I think you may need to consider, depending on the size of your IRA and other income, the tax savings of converting more of the IRA each year at low income tax rates while deferring reportable SS income by delaying when you start taking your SS. Up to 85% of your SS is taxable and thus increases outside income that bumps the IRA conversion monies into a higher bracket at a lower conversion amount. And of course delaying SS benefits increases their amount when you do take them.
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Old 04-30-2011, 12:23 PM   #4
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The relevant codes on the 1099-R, at least on my conversion, are:

Box 7 Distribution code = 2 IR/SEP simple box checked.
Might also need box 2b checked in both boxes (Taxable amount not determined and total distribution)
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Old 04-30-2011, 01:36 PM   #5
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see codes here.....scroll down to find instructions/codes for box 7

http://www.irs.gov/pub/irs-pdf/f1099r.pdf

since you're >59.5, code is 7 for normal distrib. as you suspected.
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Old 05-02-2011, 11:03 AM   #6
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Another question.

I have multiple IRAs: traditional, rollover and Roth.

From reading the literature about doing conversions to Roth, we are supposed to consider all IRA monies (so as not to preferentially select from certain IRAs).

Do I need to sum up all of the traditional and rollover IRA monies to figure out the 'pot' from which I am converting? Or do I just sum up the traditional IRAs?

omni
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Old 05-02-2011, 11:33 AM   #7
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Quote:
Originally Posted by kaneohe View Post
see codes here.....scroll down to find instructions/codes for box 7

http://www.irs.gov/pub/irs-pdf/f1099r.pdf

since you're >59.5, code is 7 for normal distrib. as you suspected.
Just be aware that if you have non-deductable IRA's (as I/DW have) you can delay "credits" to a future year if you think that FIT will be increased, and delay the effects of your 8086 filings over the previous years.

It's something that I have done during the last four years, in retirement. You have to measure the Roth conversion effort with other income taxable treatments to come up with a plan that will work in your specific situation.

If you run TT, check the block on your 1099 and turn it off to see the tax difference. It will only increase, IMHO in future years. You can get the credit today or delay it to the future, when FIT rates may be increased.
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Old 05-02-2011, 12:10 PM   #8
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Just be aware that if you have non-deductable IRA's (as I/DW have) you can delay "credits" to a future year if you think that FIT will be increased, and delay the effects of your 8086 filings over the previous years.

It's something that I have done during the last four years, in retirement. You have to measure the Roth conversion effort with other income taxable treatments to come up with a plan that will work in your specific situation.

If you run TT, check the block on your 1099 and turn it off to see the tax difference. It will only increase, IMHO in future years. You can get the credit today or delay it to the future, when FIT rates may be increased.

rescueme,

Thanks. I appreciate that you're obviously far better-versed in all of this than I am.

I'm getting a headache just trying to read all of the IRS instructions for forms 8606, 1040 (lines 15a & b), 1099, and any others that their instructions direct me to.

I'm currently living on my pension with supplemental monies from my CD ladders (which are running out).

I'm now working on figuring out what best to do with my [considerable] stash in traditional IRAs. I have some non-deductible IRAs (I need to go back through my records and figure out which ones they are.)

I can delay SS, as needed, for the next decade (until age 70), and utilize the intervening years to make conversions to Roth IRAs.

It's how much to convert and when that are the issues I'm wrestling with.

I figure federal taxes are going up in the future. Inflation looks like another issue we will be contending with.

omni
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Old 05-02-2011, 04:57 PM   #9
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Originally Posted by omni550 View Post
Another question.

I have multiple IRAs: traditional, rollover and Roth.

From reading the literature about doing conversions to Roth, we are supposed to consider all IRA monies (so as not to preferentially select from certain IRAs).

Do I need to sum up all of the traditional and rollover IRA monies to figure out the 'pot' from which I am converting? Or do I just sum up the traditional IRAs?

omni
a rollover is typically considered a TIRA if it came from a 401K, etc . so sum up the traditionals including the rollovers. Did you file form 8606 when you made non-deductible contributions.
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Old 05-02-2011, 05:03 PM   #10
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Originally Posted by rescueme View Post
Just be aware that if you have non-deductable IRA's (as I/DW have) you can delay "credits" to a future year if you think that FIT will be increased, and delay the effects of your 8086 filings over the previous years.

It's something that I have done during the last four years, in retirement. You have to measure the Roth conversion effort with other income taxable treatments to come up with a plan that will work in your specific situation.

If you run TT, check the block on your 1099 and turn it off to see the tax difference. It will only increase, IMHO in future years. You can get the credit today or delay it to the future, when FIT rates may be increased.
not sure what you are saying here.......are you saying that using the non-deductible part of your TIRAs when converting is an option that you can use at a time of your choosing? I am not aware of such an option.......my impression is that you use the formula that IRS provides in the calculation.
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