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Author: lswswein Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: 2010 Roth IRA conversion Date: 5/19/2010 11:47 AM
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Hi
I am helping a friend with a tax question and he is planning to go to Grad school this fall and wants to fund it from his IRA account. This is where things stand right now:

1. Has a Traditional IRA with 44K in it.
2. Is in the 25% tax bracket now and will be in the 15% bracket next yr

What he wants to do:

1. Rollover to Roth in 2010, but opt to count it as income (50/50) in 2011 and 2012 (This is the exception for 2010).

2. Withdraw from Roth in 2010 (upto the cost of tuition)

3. It violates the 5 year rule, so subject to 10% penalty, but the penalty will be waived for qualified education expense.

Some numbers:

Plan A:

1. Rollover $44,000 in 2010. (Addl income in 2011 - $22,000. Addl income in 2012 - $22,000)
2. Withdraw $44,000 from Roth in 2010.
2011 Tax from rollover: Expect to be in the 15% tax bracket (federal) + 5% for state => $4,400 (due Apr 2012).
2012 Tax from rollover: Expect to be in the 25% tax bracket (federal) + 5% for state => $6,600 (due Apr 2013).

Plan B:
1. Withdraw from Trad IRA $44,000 in 2010
2010 Tax from withdrawal: Expect to be in 25% tax bracket + 5% for state => $13,200 (due Apr 2011)

You can see why Plan A is tempting.

Does this make sense? I read all the IRS publications and I think this is ok. Any help will be appreciated

thanks
-h
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