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Financial Planning / Tax Strategies


Subject:  Re: Just for discussion and/or information Date:  4/14/2012  10:33 AM
Author:  aj485 Number:  116008 of 127753

My investment guy told me about two years ago if I converted my regular IRA to a Roth IRA I could split the tax cost over two years. It was some sort of special 2-year deal. Last year's taxes was the first year of the 2 years (which I am sure you guys know). Anyway, my tax guy said that was a ploy by the gov't (IRS?) to get money now. And it worked. He said I would have been better off to wait until I had to get the money, then do it in smaller amounts. It wasn't even that much, about $25K I think. Half of that put me into another tax bracket, and this year's taxes will be the same. It cost me almost $3k in taxes each year. What a deal!

It doesn't matter if your IRA is a Roth or a traditional IRA, you can own the same investments in it. So the decision to convert (or not) is not an investment decision, it's a tax decision.

If you don't know anything about taxes, you should be listening to your tax guy, who you pay to advise you on taxes, not your investment guy, who you pay to advise you on investments about tax decisions. Since the investment guy told you there were tax implications, why didn't you pick up the phone and call the tax guy before taking action on what the investment guy was suggesting?

Seems to me that you are trying to create discussion about a mistake that you made.

Additionally, your assertion in your first post that you have no source of income other than your $43k in annuities is incorrect. By choosing to convert the Traditional IRA to a Roth, you chose to create income of $25k split over 2 years. So your income for 2011 was actually closer to $55k.

The fact that some of that income was not currently spendable by you doesn't negate the fact that is income. That's what tax-deferred accounts like Traditional IRAs do for you - they allow you to defer income (and taxes on that income) until you choose to take the money out of the account. You chose to take the income in 2010 by doing the conversion.

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