Message Font: Serif | Sans-Serif
No. of Recommendations: 0
<< I'm a student w/ about $9,000 in a deductible IRA.
My cost basis was $6,000. I've also made around $20K this year. >>


<< When I roll over into the Roth IRA, all gains are taxed as regular income, correct? >>

If you have basis in your IRA, then only about $3k will be subject to tax. This implies that the IRA was a NON-DEDUCTIBLE IRA. If you IRA was deductible for all of the contributions that you made in the past, then you really have NO basis in your IRA, and the entier $9k would be subject to tax at ordinary rates...spread out over 4 years.

<< Thus, for the 1998 tax year I'll have extra "income" of $9,000, is this correct? >>

Maybe yes, maybe no. It depends if you really DO have a basis in your IRA, as noted in the response above. But obviously, in the worst case, you would be staring down the barrel of tax liability on $9k.

<<Well, 15 or 28% now is a lot better than 30-40% in
forty years. >>

Can't argue with you on that point.

<< It's a good thing I'm not graduating until Dec. 1998.
Otherwise I'd already be in a much higher tax

Again, remember that you'll have to spread the recognition of the distirbution out over 4 years, regardless of if you want to or know. So if you rollover in 1998, you'll recognize $2,250 in additional income, and $2,250 for 1999, 2000, and 2001 (assuming that the $9k is all taxable). So things might not work out as rosey as you might think.

TMF Taxes
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.