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Author: kplynch Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121178  
Subject: LT Gains in re: Roth Conversion Date: 7/13/1999 10:52 AM
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I read the Roth FAQ, and I've been lurking for a while, but a grasp on the following issue still eludes me:

In 98 I converted a ~$20K IRA to a Roth IRA. All my contributions to the IRA were tax-deferred. I elected to take the ~$20K hit over four years, and basically added ~$5K to my income for '98.

My salary puts me in the 28% bracket. After reading here about the 20% rate for long-term capital gains, I got to wondering whether I over-taxed myself with the Roth conversion.

That is, almost all of the ~$20K IRA I converted was comprised of contributions I had made years ago.

- Shouldn't therefore most of the gain be taxed at the LT cap gains rate?

- If so, can I rectify this with an amended return?

- In the next 3 years, in addition to the 1040 long form, what extra form(s) should I be using to calculate LT gains?

KpL
PS: thanks for this and all your previous info. You posters are doing a real service here.
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Author: jwshuler Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17237 of 121178
Subject: Re: LT Gains in re: Roth Conversion Date: 7/13/1999 11:53 AM
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"Shouldn't therefore most of the gain be taxed at the LT cap gains rate? "

No...all income that results from conversions to Roth IRAs is treated as ordinary income, even if it contains capital gains. At least you don't have to amend your return!
Cheers, Jennifer

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Author: defg0003 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17256 of 121178
Subject: Re: LT Gains in re: Roth Conversion Date: 7/13/1999 5:24 PM
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yep - and all distributions from a "regular" IRA are ordinary income (unless they represent a recovery of non-deductible IRA contributions) - regardless of the source of the funds distributed (e.g. - capital gains, long & short; or dividend & interest income). The characteristics (tax attributes) of the underlying funds in the IRA are meaningless upon distribution. UGH!



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Author: BobCPA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17259 of 121178
Subject: Re: LT Gains in re: Roth Conversion Date: 7/13/1999 6:29 PM
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kplynch writes:

...In 98 I converted a ~$20K IRA to a Roth IRA. All my contributions to the IRA were tax-deferred. I elected to take the ~$20K hit over four years, and basically added ~$5K to my income for '98.

My salary puts me in the 28% bracket. After reading here about the 20% rate for long-term capital gains, I got to wondering whether I over-taxed myself with the Roth conversion.

That is, almost all of the ~$20K IRA I converted was comprised of contributions I had made years ago.

- Shouldn't therefore most of the gain be taxed at the LT cap gains rate?


No. In most cases distributions from Traditional IRA's are taxed as ordinary income when made with deductible contributions.

- If so, can I rectify this with an amended return?

No need to based on above.

- In the next 3 years, in addition to the 1040 long form, what extra form(s) should I be using to calculate LT gains?...

No need calculate the L/T gains as indicated above. But more than likely the IRS will require the continued use of form 8606 Part II to report the remianing part of the conversion amount. Just like you did in 1998. Right? :)

Hope this helps.

Bob

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