Comments on: Should you convert your IRA to a Roth? http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/ Christian Personal Finance - Financial help blog, debt help and other financial resources Tue, 14 Feb 2012 21:22:01 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: JoeTaxpayer http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-167826 JoeTaxpayer Sun, 22 Jan 2012 22:59:19 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-167826 It seems you have it right. In 2012 the bracket line is $35,350 for single. Yes the extra money should be taxed at the 15%, no, the bank shouldn't care, as long as it's not in some kind of CD with early withdrawal penalty. In general, to accomplish what you wish, I recommend converting that 7 or 8 thousand to a Roth. This way, when you do your taxes in April '13, you can recharacterize the exact amount you are over $35,350. By the way, there is a convoluted equation, when half your SS benefit plus your taxable income exceeds $25,000 social security starts to be taxed. This creates a Phantom Tax Rate (for lack of a better expression) higher than your marginal rate. I highly recommend using a copy of TurboTax for 2011, and understand your marginal rate. Do your taxes, then go back, and increase your IRA RMD by exactly $1000. If your tax jumps more than 15%, this may be why. The Roth conversion and recharacterizing can help avoid a negative surprise next year at tax time. I hope this helped. It seems you have it right. In 2012 the bracket line is $35,350 for single.
Yes the extra money should be taxed at the 15%, no, the bank shouldn’t care, as long as it’s not in some kind of CD with early withdrawal penalty.

In general, to accomplish what you wish, I recommend converting that 7 or 8 thousand to a Roth. This way, when you do your taxes in April ’13, you can recharacterize the exact amount you are over $35,350.

By the way, there is a convoluted equation, when half your SS benefit plus your taxable income exceeds $25,000 social security starts to be taxed. This creates a Phantom Tax Rate (for lack of a better expression) higher than your marginal rate. I highly recommend using a copy of TurboTax for 2011, and understand your marginal rate. Do your taxes, then go back, and increase your IRA RMD by exactly $1000. If your tax jumps more than 15%, this may be why.

The Roth conversion and recharacterizing can help avoid a negative surprise next year at tax time. I hope this helped.

]]> By: mim http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-167821 mim Sun, 22 Jan 2012 21:38:36 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-167821 Hello Joe Taxpayer, My RMD from my traditional IRA ( Bank CD ) is approximate. $8000. for this yr., 2011. I want to withdraw an additional $7,000.( to stay under $34,000. ) from this account in order to prevent my going into a future higher tax bracket eventually as I am 78 y.o. & want to stay under the $34,000. limit that will bring me into the higher tax bracket. I'm hoping to draw down this account for above reason. My total taxable income ,with including Social security is approx. $18,000.& I am in the 15% tax bracket. If I withdraw an additional $7,000.will my bank penalize me ? (Also, is $7,000. in addition to the $8000.= $15000. RMD ) )a right amount ?) close to $34,000.? I do understand that only the $8000. will be a RMD but I do pay taxes on the additional $7,000. I'm Subtracting $18,000.(my total. inc. ) from $34,000.(tax bracket change ) & want to be sure that I don't go over the higher tax amount. In addition, I own my home & need additional money for repairs & updating. Thank you." Hello Joe Taxpayer,
My RMD from my traditional IRA ( Bank CD ) is approximate. $8000. for this yr., 2011.
I want to withdraw an additional $7,000.( to stay under $34,000. ) from this account in order to prevent my going into a future higher tax bracket eventually as I am 78 y.o. & want to stay under the $34,000. limit that will bring me into the higher tax bracket.
I’m hoping to draw down this account for above reason.
My total taxable income ,with including Social security is approx. $18,000.& I am in the 15% tax bracket.
If I withdraw an additional $7,000.will my bank penalize me ?
(Also, is $7,000. in addition to the $8000.= $15000. RMD ) )a right amount ?) close to $34,000.?
I do understand that only the $8000. will be a RMD but I do pay taxes on the additional $7,000.
I’m Subtracting $18,000.(my total. inc. ) from $34,000.(tax bracket change ) & want to be sure that I don’t go over the higher tax amount.
In addition, I own my home & need additional money for repairs & updating.
Thank you.”

]]> By: mim http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-167820 mim Sun, 22 Jan 2012 21:36:58 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-167820 Hello Terry, My RMD from my traditional IRA ( Bank CD ) is approximate. $8000. for this yr., 2011. I want to withdraw an additional $7,000.( to stay under $34,000. ) from this account in order to prevent my going into a future higher tax bracket eventually as I am 78 y.o. & want to stay under the $34,000. limit that will bring me into the higher tax bracket. I'm hoping to draw down this account for above reason. My total taxable income ,with including Social security is approx. $18,000.& I am in the 15% tax bracket. If I withdraw an additional $7,000.will my bank penalize me ? (Also, is $7,000. in addition to the $8000.= $15000. RMD ) )a right amount ?) close to $34,000.? I do understand that only the $8000. will be a RMD but I do pay taxes on the additional $7,000. I'm Subtracting $18,000.(my total. inc. ) from $34,000.(tax bracket change ) & want to be sure that I don't go over the higher tax amount. In addition, I own my home & need additional money for repairs & updating. Thank you." Hello Terry,
My RMD from my traditional IRA ( Bank CD ) is approximate. $8000. for this yr., 2011.
I want to withdraw an additional $7,000.( to stay under $34,000. ) from this account in order to prevent my going into a future higher tax bracket eventually as I am 78 y.o. & want to stay under the $34,000. limit that will bring me into the higher tax bracket.
I’m hoping to draw down this account for above reason.
My total taxable income ,with including Social security is approx. $18,000.& I am in the 15% tax bracket.
If I withdraw an additional $7,000.will my bank penalize me ?
(Also, is $7,000. in addition to the $8000.= $15000. RMD ) )a right amount ?) close to $34,000.?
I do understand that only the $8000. will be a RMD but I do pay taxes on the additional $7,000.
I’m Subtracting $18,000.(my total. inc. ) from $34,000.(tax bracket change ) & want to be sure that I don’t go over the higher tax amount.
In addition, I own my home & need additional money for repairs & updating.
Thank you.”

]]> By: ang http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-167531 ang Sat, 21 Jan 2012 04:56:53 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-167531 I'm a 78 y.o. female widow , my gross income ( Soc.Sec, pension, all taxable ) is $19000. & with my RMD ( $8,000) totals approx. $26,000. How much more can I take from my RMD to stay within the 15% tax bracket ? I need money to update plumbing, furniture, etc. & have no other savings to take from. The $26000. is pretty much used up for taxes, insurance , utilities, food, etc. Appreciate your reply with explanation. I’m a 78 y.o. female widow , my gross income ( Soc.Sec, pension, all taxable ) is $19000. & with my RMD ( $8,000) totals approx. $26,000.
How much more can I take from my RMD to stay within the 15% tax bracket ?
I need money to update plumbing, furniture, etc. & have no other savings to take from.
The $26000. is pretty much used up for taxes, insurance , utilities, food, etc.
Appreciate your reply with explanation.

]]> By: lena http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-167276 lena Fri, 20 Jan 2012 02:23:37 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-167276 I contributed 5,000 in 2010 to a traditional IRA while I meant to contribute it to a roth IRA. when I realized this error, I moved the money to my traditional IRA account in 2011. I didn't deduct this 5,000 in my 2010 tax return. now the 5,000 is shown as a distribution in 2011 and in theory I need to include it as my "income" in 2011. How do I report this and show IRS that I shouldn't include it in 2011 taxable income? Thanks! I contributed 5,000 in 2010 to a traditional IRA while I meant to contribute it to a roth IRA. when I realized this error, I moved the money to my traditional IRA account in 2011. I didn’t deduct this 5,000 in my 2010 tax return. now the 5,000 is shown as a distribution in 2011 and in theory I need to include it as my “income” in 2011. How do I report this and show IRS that I shouldn’t include it in 2011 taxable income? Thanks!

]]> By: mim http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-145463 mim Sat, 26 Nov 2011 19:40:54 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-145463 I have 2 TIRA's, one in amt. of $34,000 & another $110,000. I am a 79 y.o. widow ,own home, drawing approx. $8000. RMD . My total yr. income including the RMD is approx. $25000. I am in need of more money to help with expenses ( insurance, taxes, utilities, personal, auto, etc. ) & want to know the best way to withdraw some of my IRA CD money . The RMD puts me over the top to be eligible for any medicare savings program or low imcome housing of which I am interested in as I find owning responsibilities have been much too stressful for me to manage. Would appreciate any suggestions, solutions. I have 2 TIRA’s, one in amt. of $34,000 & another $110,000.
I am a 79 y.o. widow ,own home, drawing approx. $8000. RMD .
My total yr. income including the RMD is approx. $25000.
I am in need of more money to help with expenses ( insurance, taxes, utilities, personal, auto, etc. ) & want to know the best way to withdraw some of my IRA CD money .
The RMD puts me over the top to be eligible for any medicare savings program or low imcome housing of which I am interested in as I find owning responsibilities have been much too stressful for me to manage.
Would appreciate any suggestions, solutions.

]]> By: JoeTaxpayer http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-143982 JoeTaxpayer Thu, 17 Nov 2011 16:23:45 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-143982 John - The need for "rollover" as a separate designation has gone away. For all practical purposes, you have one IRA, it happens to be in multiple accounts, and has some post-tax component. You take the total, do the math, and transfer from where you wish. To be clear, you convert whatever funds you want, but do the math taking all accounts into consideration. John -
The need for “rollover” as a separate designation has gone away.
For all practical purposes, you have one IRA, it happens to be in multiple accounts, and has some post-tax component.
You take the total, do the math, and transfer from where you wish. To be clear, you convert whatever funds you want, but do the math taking all accounts into consideration.

]]> By: Big John http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-143972 Big John Thu, 17 Nov 2011 15:14:49 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-143972 I have a traditional IRA worth 40,000 and a rollover IRA worth 100,000. Both have a mixture of before and after tax funds. I understand how to compute the taxable amount. My question has to do with where the funds can come from for a partial conversion to a roth IRA. For example, if I want to convert 25,000 to a roth IRA, can I take the entire 25,000 from either one of the IRA's or do I need to take the same percentage from each (e.g. 25,000/140,000 = 17.85% from each)? I have a traditional IRA worth 40,000 and a rollover IRA worth 100,000. Both have a mixture of before and after tax funds. I understand how to compute the taxable amount. My question has to do with where the funds can come from for a partial conversion to a roth IRA. For example, if I want to convert 25,000 to a roth IRA, can I take the entire 25,000 from either one of the IRA’s or do I need to take the same percentage from each (e.g. 25,000/140,000 = 17.85% from each)?

]]> By: Darrin http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-134853 Darrin Thu, 29 Sep 2011 23:26:24 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-134853 Last year I had the chance to save more than $100k on the principle of a commercial property and used $125k from an IRA (traditional 1/2 from mine + 1/2 from wife) to pay-off the loan and incur the savings. Now, 11.5 months later I want to re-fund my Traditional IRA and am being told I cannot deposit more than $5k/person per year until age 50. I had figured that the 10% penalty would sting, but would be worth it for the savings...but if I get hit with the taxes too and cannot get those IRA's back up to previous levels, then I have really messed myself up more than I had thought. Any advice? Quite troubled. Last year I had the chance to save more than $100k on the principle of a commercial property and used $125k from an IRA (traditional 1/2 from mine + 1/2 from wife) to pay-off the loan and incur the savings. Now, 11.5 months later I want to re-fund my Traditional IRA and am being told I cannot deposit more than $5k/person per year until age 50. I had figured that the 10% penalty would sting, but would be worth it for the savings…but if I get hit with the taxes too and cannot get those IRA’s back up to previous levels, then I have really messed myself up more than I had thought. Any advice? Quite troubled.

]]> By: JoeTaxpayer http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/comment-page-1/#comment-133318 JoeTaxpayer Sat, 17 Sep 2011 20:08:33 +0000 http://christianpf.com/convert-traditional-ira-to-roth-ira-2010/#comment-133318 Ikram - The Traditional vs Roth has little to do with age, and nearly everything to do with current income, future income, and current assets. Less than $100k? How much less? But more important what is the line on your taxes that shows "taxable income"? Which is the same as my asking you what tax bracket you are in. If you are in the 15% bracket, I have little issue with the Roth, so long as you have some money (maybe 401(k)?) that's pretax. In the 25% bracket, pretax is the better account for most. I suggest you re-read the entire set of comments on this post, and I'd also ask why you are taking advice from insurance salesmen? His expertise is in insurance. Do you call your doctor when the air conditioner blows hot air? Ikram – The Traditional vs Roth has little to do with age, and nearly everything to do with current income, future income, and current assets. Less than $100k? How much less? But more important what is the line on your taxes that shows “taxable income”? Which is the same as my asking you what tax bracket you are in. If you are in the 15% bracket, I have little issue with the Roth, so long as you have some money (maybe 401(k)?) that’s pretax. In the 25% bracket, pretax is the better account for most.

I suggest you re-read the entire set of comments on this post, and I’d also ask why you are taking advice from insurance salesmen? His expertise is in insurance. Do you call your doctor when the air conditioner blows hot air?

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