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Financial Planning / Tax Strategies


Subject:  Re: Roth IRA, WHEN? Date:  1/22/1998  10:20 PM
Author:  mjskas Number:  1456 of 127638

dandoersdan Wrote:
<What did you mean "can spread the taxable income (but NOT the tax) over four years...>

My understanding is that the tax is paid for the year in which it is reported. I think what is meant here can be illustrated by the following example:

In 1998 and 1999, you are in the 28% bracket and roll your regular IRA into a Roth IRA (during 1998). The amount you are going to roll over is $10K. In the year 2000 and 2001 you earn enough to become a part of the distinguished 31% tax bracket. You will pay 28% tax on 1/4 of the rollover amount ($2500) during tax years 1998 and 1999, and 31% tax on 1/4 of the rollover amount during tax years 2000 and 2001. You would pay the 31% (in 2000 and 2001) even if the $10K added to your AGI for 1998 was still in the 28% tax bracket.


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