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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121597  
Subject: Re: Roth Conversion Tax Rate.. Date: 12/30/1998 3:13 PM
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[[ Happy New year to all,]]

And Happy New Year to you...

[[ I've converted my regular to roth IRA.]]

Congrats!!

[[ The old IRA had a cost basis of 17k
(non-deductable contributions) and a value of 50k. Thus a total of 50-17=33k is
taxable and spread out over four years. 33/4 = 8.25k per year of taxable
income.]]

Yup...so far so good...

[[ Is that 8.25k taxed at the cap gain rate (0.2 for most people, if held more than a
year)?]]

Nope. It'll all be taxed at your marginal tax rate...whatever that might be for you in each separate year. In 1998, you may be in the 28% rate...and that's what you'll pay. You may get a big raise in 1999, and move up to the 39% bracket...and that's what you'll pay in 1999. In year 2000, you may get demoted back to the 15% bracket...and that's what your pay for that year. See how it works. It'll all be at your marginal tax rate for that specific year.

[[ Also, any errors with the tax basis computations?]]

Nope...not that I see.

TMF Taxes
Roy

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