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Author: Seperation Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121572  
Subject: ROTH Taxes Date: 12/12/1998 10:40 AM
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I am still confused regarding the payment of taxes on Roth conversions. One of the answers to the top 10 Roth IRA qestions indicated that "spreading out the income is NOT the same as spreading out the Tax on the converssion. What does this mean? Let's say I decide to spread out my conversion of $50,000 over four years. So, my AGI increases by $12,500 each year. In years 1998 and 1999, assume I am in the 28% bracket so I pay 28% on the $12,500 each year. But in 2000 and 2001, I am in the 31% bracket so I pay 31% on the $12,500 in each of those years. Is this correct?
I guess what I am asking is does the statement from the top 10 Roth IRA questions mean that I don't pay 28% each year - since I converted when my tax rate was 28%? I pay my current tax rate on the $12,500 each year?
Sorry to have gone on so long. Thanks for your help.
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Author: SallyK Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7081 of 121572
Subject: Re: ROTH Taxes Date: 12/12/1998 4:56 PM
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Let's say I decide to spread out my conversion of $50,000 over four years. So, my AGI increases by $12,500 each year. In years 1998 and 1999, assume I am in the 28% bracket so I pay 28% on the $12,500 each year. But in 2000 and 2001, I am in the 31% bracket so I pay 31% on the $12,500 in each of those years. Is this correct?

Yes, that is correct. So, if you anticipate your incremental tax rate will go up in future years, you might want to elect to pay the tax on the entire gain in 1998.

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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: 7152 of 121572
Subject: Re: ROTH Taxes Date: 12/14/1998 6:37 PM
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[[I am still confused regarding the payment of taxes on Roth conversions. One of the answers to the
top 10 Roth IRA qestions indicated that "spreading out the income is NOT the same as spreading
out the Tax on the converssion.]]

Then you should REALLY read my series of posts on the Roth IRA in the Taxes FAQ area. It explains this in detail, and includes examples. But let's move on.

[[ What does this mean? Let's say I decide to spread out my
conversion of $50,000 over four years. So, my AGI increases by $12,500 each year.]]

Correctamundo...

[[ In years
1998 and 1999, assume I am in the 28% bracket so I pay 28% on the $12,500 each year.]]

Again, correctamundo...

[[ But in
2000 and 2001, I am in the 31% bracket so I pay 31% on the $12,500 in each of those years. Is
this correct?]]

It is ABSOLUTELY correct!!!

[[ I guess what I am asking is does the statement from the top 10 Roth IRA questions mean that I
don't pay 28% each year - since I converted when my tax rate was 28%? I pay my current tax
rate on the $12,500 each year?]]

That's exactly what it means. And, again, in my Roth IRA series of posts in the Taxes FAQ area, you can read much more about this and other complex Roth IRA issues.

[[ Sorry to have gone on so long. Thanks for your help.]]

You are very welcome. And thanks for your post...
TMF Taxes
Roy

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