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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: Re: 100K AGI limit for Roth IRA Date: 10/9/1997 11:07 AM
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<<First I want to thank you for your previous answers to my IRA and tax questions.>>

You are more than welcome Rusty. Glad I could help just a little bit.

<<I have 2 questions. The first involves the 100K AGI cap for converting regular IRAs to Roth IRAs. Is the 100K cap based on 1997 or 1998 AGI? If it is based on 1998 AGI, and I am close to the limit, I may not know whether I'm over until early 1999 due to mutual funds dividends, capital gains, etc that arrive early in 1999. Since I'd like to open a Roth IRA in early 1998 and need to convert regular IRAs to Roth IRAs for tax benefits in 1998 this could be a problem. Can you shed some light on this situation?>>

You are absolutely correct: It COULD be a problem...and WILL be a problem for many people such as yourself.

But first of all, remember that the AGI limitations for an IRA CONTRIBUTION are much different than those for a rollover. For a contribution, single people can make a contribution at AGI at $95k (with phase out to $110k). Married/joint can contribute with an AGI of $150k, (with phase out to $160k). So make sure that you know your AGI limitations regarding contributions as opposed to "rollovers".

But since your income may increase $100k, and may prohibit your "rollover", you have very few choices but to wait until the end of the year and run the numbers. The rollover limitation is an "all or nothing" situation, so if you are over, you're over. Period. There is no easy way around this situation as far as I know.

<<My second question concerns a message I think you (Roy) answered several weeks ago. I think you said (not positive though) that the taxable amount that is converted from a regular IRA to a Roth IRA must be added to the AGI for limit testing. I just received a mailing from T Rowe Price that said the conversion amount is not used in figuring the 100K AGI cap. I know I must add at least 1/4 of the taxable conversion to my 1998 tax if I meet the AGI test. Which do you think is correct?>>

I have backtracked on my previous position. I thought I make a post to that effect here, but perhaps not. After reading the new legislation (again, and again, and again) and tracing back to other code sections, I also now believe that the rollover amount will NOT add to AGI for "rollover" testing purposes, BUT will add 1/4 of the taxable rollover amount into AGI for "other" purposes (such as the medical expense floor, miscellaneous expense floor, passive loss testing, etc.). And while I haven't read the T.Rowe Price literature yet, it sounds like they are on the right track.

Hope this helps..
TMF Taxes
Roy
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