No. of Recommendations: 0
A few months back I converted some "old" mutual fund IRA's (one for me, one for my wife) to traditional IRA's with a discount broker, and then switched those to a Roth. My question relates to the conversion.
We established the IRA's probably 12-14 years ago, and over a period about 6 or 7 years we made our $2K contributions 5 times. A couple of those times they were deductable contributions, but a couple of times they weren't.
When I calculate my 1998 taxes, would I have to include THE WHOLE conversion (actually 25% of it for this tax year) as income, or is there some formula I would use to determine the portion that was deductable, and only claim that piece of it?
I've downloaded Pub #590 from the IRS website, but it's "For use in preparing 1997 Returns", so it doesn't mention anything about a Roth.

Thanks in advance,

Tim
Print the post Back To Top
No. of Recommendations: 0
Tim writes:

<<A few months back I converted some "old" mutual fund IRA's (one for me, one for my wife) to traditional IRA's with a discount broker, and then switched those to a Roth. My question relates to the conversion.
We established the IRA's probably 12-14 years ago, and over a period about 6 or 7 years we made our $2K contributions 5 times. A couple of those times they were deductable contributions, but a couple of times they weren't.
When I calculate my 1998 taxes, would I have to include THE WHOLE conversion (actually 25% of it for this tax year) as income, or is there some formula I would use to determine the portion that was deductable, and only claim that piece of it?
I've downloaded Pub #590 from the IRS website, but it's "For use in preparing 1997 Returns", so it doesn't mention anything about a Roth.>>


By the time you have to prepare your return, the IRS will undoubtedly have a revised Form 8606 to use for computing the taxable part of a traditional IRA conversion to a Roth IRA and to show you will use a four-year spread of the taxable conversion. The mechanics aside, here's how it will work.

Your old IRA will issue a 1099R showing a distribution as a result of the conversion. The distribution will be reported at market value on the date the money was transferred. From that total you will subtract all nondeductible contributions you made to that IRA. The balance becomes the income that must be reported on your tax return. Divide that number by four, and that's what you report each year for tax-years 1998 though 2001.

I hope you kept a copy of the Form 8606 you were required to file in the years you made those nondeductible contributions. They are the proof you made after-tax contributions to an IRA. Without them, you may have a difficult time proving you made them and could end up paying tax on those deposits again.

Regards…..Pixy
Print the post Back To Top
No. of Recommendations: 0
If you take a look at the IRS Internet site, http://www.irs.gov, and go to forms, you will be able to either just look at, or download in adobe format, the forms for tax year 1998. They were posted several years ago and are very useful in projecting those nasty taxes.
Print the post Back To Top
No. of Recommendations: 0
TrudyKAS wrote:

<<If you are investing for beneficiaries, the Roth is the way to go. Instead of 37to 55% estate taxes after you are gone, you pay the income tax at your marginal rate now. If, (and I assume this is the case) you are planning this for your beneficiaries, the money will continue to grow with now withdrawal requirement until you have earned you golden wings. The your beneficiaries are only required to withdraw based on the expected life span of the oldest beneficiary.

And no ordinary incom or capital gains taxes, ever!!!>>


OOPS! As Don aka Wyvern51 mentioned, the estate taxes don't disappear. They must still be paid when owed. What is avoided is the income tax on the IRA that passes to heirs. With a traditional IRA, the income tax and estate tax must be paid. With a Roth, the income tax was paid by the decedent during life, so all that must be paid is any estate tax due. Also, after the Roth is established, income tax on any gains in the Roth is also avoided.

Regards….Pixy
Print the post Back To Top
Advertisement