No. of Recommendations: 0
My fiance switched to a Roth IRA in December. The end of year value of her account was approximately $12K. While I know that she is responsible for paying taxes on this money (spread across four years), it seems to me that she is getting taxed TWICE on the $2K she contributed in 1998.

The $2K is taxable income from her job that she put into the IRA (increasing her IRA account by $2K). By switching to the Roth, she now has to pay taxes on the $2K that is already reflected in her taxable income.

Am I totally off base here?
Print the post Back To Top
No. of Recommendations: 0
I think what you are missing is that she can deduct that $2,000, which she contributed in 1998 to her Regular IRA, on the front page of her 1998 Federal income tax return. That way, she won't be taxed twice. And that will be the last time she'll be able to do that, as Roth contributions are not deductible.

With a Roth, you cannot deduct your contributions the way you could with the old "regular" IRA. Hope this helps.

Pete
piraino@erols.com
Print the post Back To Top
No. of Recommendations: 0
Greetings, Aestatis, and welcome. You wrote:

<<My fiance switched to a Roth IRA in December. The end of year value of her account was approximately $12K. While I know that she is responsible for paying taxes on this money (spread across four years), it seems to me that she is getting taxed TWICE on the $2K she contributed in 1998.

The $2K is taxable income from her job that she put into the IRA (increasing her IRA account by $2K). By switching to the Roth, she now has to pay taxes on the $2K that is already reflected in her taxable income.

Am I totally off base here?>>


She will not pay taxes again on the $2K of nondeductible contributions she made to her traditional IRA in 1998. That contribution will be deducted from the amount she must declare as income due to the conversion to the Roth IRA. See Form 8606 which must be filed with her tax return for 1998 and see IRS Publication 590, Individual Retirement Arrangements, for details. You can get both at www.irs.gov .

Regards….Pixy
Print the post Back To Top
No. of Recommendations: 0
Piraino wrote:

<<I think what you are missing is that she can deduct that $2,000, which she contributed in 1998 to her Regular IRA, on the front page of her 1998 Federal income tax return. That way, she won't be taxed twice. And that will be the last time she'll be able to do that, as Roth contributions are not deductible.>>

Possibly, but with coverage in a retirement plan at work it's also possible that contribution may not be deductible at all depending on her AGI. Besides, the writer already said the contirbution was made with after-tax money.

Regards....Pixy
Print the post Back To Top
No. of Recommendations: 0
I'm confused.

I contributed $2K to a Roth rollover for 1998 -- nondeductible. (Because I also have a 401K plan, I am not eligible to deduct any IRA contribution.)

Does that mean I will be taxed twice on my IRA contribution for 1998 -- once already (since the contribution was made with after-tax money), and once now for year-end taxes? Thanks...

--AliFool
Print the post Back To Top
No. of Recommendations: 0
AliFool asks:

<<I'm confused.

I contributed $2K to a Roth rollover for 1998 -- nondeductible. (Because I also have a 401K plan, I am not eligible to deduct any IRA contribution.)

Does that mean I will be taxed twice on my IRA contribution for 1998 -- once already (since the contribution was made with after-tax money), and once now for year-end taxes? Thanks...>><


No, you will not be taxed on the $2K again. That was a contribution you made to the Roth with after-tax money out of your net paycheck from work. You will, though, be taxed on any previously untaxed money in the traditional IRA you converted to the Roth IRA.

Regards....Pixy
Print the post Back To Top
No. of Recommendations: 0
Thanks. The way I have figured it, I will be taxed ONLY on the $2.56 that my trad. IRA made BEFORE it got converted into a Roth for 1998. (It was an "immediate" roll-over.)

Thanks for the help. I wanted to make sure I had this down "once and for all" before I file those 1998 tax forms. Almost ready!

--AliFool!
Print the post Back To Top
No. of Recommendations: 0
>> Thanks. The way I have figured it, I will be taxed ONLY on the $2.56 that my trad. IRA made BEFORE it got converted into a Roth for 1998. (It was an "immediate" roll-over.) <<

Too bad they don't have income averaging for that anymore. Looks like a hardship. :)

>> Thanks for the help. I wanted to make sure I had this down "once and for all" before I file those 1998 tax forms. Almost ready! <<

Yep. You've paid taxes on it already, and never again with it or its contributions, assuming you follow the rules and Uncle Sam stays true to his word...

Tim
Print the post Back To Top
No. of Recommendations: 0
>> Thanks. The way I have figured it, I will be taxed ONLY on the $2.56 that my trad. IRA made BEFORE it got converted into a Roth for 1998. (It was an "immediate" roll-over.) <<

Too bad they don't have income averaging for that anymore. Looks like a hardship. :)

Income averaging? ?Como?

--AliFool
Print the post Back To Top
No. of Recommendations: 0
>> Income averaging? ?Como? <<

Oh, that was just something that old tax law had (pre-1987, I think) where someone could reduce the tax bite of large one-time windfalls by "averaging" income over several years, thus letting more of it be taxed in the lower tax brackets over time. It's generally a long gone thing, but you could have used something like that to pay the monster taxes from that $2.56. :)

Tim
Print the post Back To Top
Advertisement