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How does a Roth conversion affect one's income taxes? What year income tax would be affected? For example, in March 2010 I decide to convert part of an IRA holding to a Roth. I know I will pay tax on that conversion. Will the tax I pay affect my 2009 or 2010 return. Will the conversion tax be considered income?

First of all it won't affect your 2009 return since you will be doing the conversion in 2010.

Secondly, all Roth conversions are taxable as ordinary income. However for Roth conversions made in tax year 2010, there is a one time rule/law where you can elect to have 50% of your conversion income added to your 2011 Federal tax return and 50% added to your 2012 Federal tax return. I stated Federal because your state tax laws may not allow this depending in which state you reside.

I would strongly recommend that you go to the TMF Tax Strategies Board
where all your Roth questions have been already addressed. If you can't find the answers by searching ... feel free to post your questions there. That is where all our resident tax pros are :)


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