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Financial Planning / Tax Strategies
|Subject: 2010 Roth IRA conversion||Date: 5/19/2010 11:47 AM|
|Author: lswswein||Number: 110449 of 119636|
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.
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).
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
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