Hey!Since almost everything is down, seems like NOW is a good time to convert regular IRA's or rollovers to a Roth IRA for those funds which are now worth less than what you put into them, you wouldn't have a gain, so you wouldn't have to pay capital gain taxes on the conversion. Right? As long as you could convert it all as "in-kind" with the company you are with. What am I missing, this seems too good to be true, and when that happens, it usually is....Feedback please!! Becky
Since almost everything is down, seems like NOW is a good time to convert regular IRA's or rollovers to a Roth IRA for those funds which are now worth less than what you put into them, you wouldn't have a gain, so you wouldn't have to pay capital gain taxes on the conversion. Right? As long as you could convert it all as "in-kind" with the company you are with. What am I missing, this seems too good to be true, and when that happens, it usually is....You don't pay capital gains taxes on IRA conversions, you pay your regular tax rate - even if you show a "loss"If you convert a traditional IRA to a roth, you pay taxes on the entire amount, as you received a deduction in the past.Now is still a good time to convert, as you'll be converting at a lower price, but still have to pay taxes - just less taxes.WRJ
January might be better.If you wait until January to convert, then if stocks go down over the next year you will have a longer time to undo the conversion to not pay taxes on the lost value by doing a recharacteriztation.http://www.investopedia.com/articles/retirement/03/092403.as...I’m not a tax pro, but as I read it, if you convert in January 2009, and file for an automatic extension in April 2010, then you would have up until October 2010 to undo the conversion.Greg
If you convert a traditional IRA to a roth, you pay taxes on the entire amount, as you received a deduction in the past.You're making a big assumption here. Many of us have after-tax money in Traditional IRA accounts.Of course, most people in that group are ineligible to convert money from a Traditional IRA to a Roth IRA, so the issue it moot for us.Acme
According to IRS Publication 590 p. 39 (available from the irs.gov website) Distributions Fully and Partially Taxable, if you made non-deductible contributions to your regular IRA, and filed Form 8606 to keep track of your cost basis, then a portion of the Roth conversion is non taxable. It is tax free only if your cost basis equals or exceed the value converted.Of course if you made deductible contributions or had profits, a portion of the conversion will be taxable.But to clarify a few points, conversions are taxed at ordinary income tax rates. Not at capital gains rates. I'm not sure about the in kind transfer requirement. They are allowed from IRA to IRA. Not sure about conversions.
BLAST! I knew I was overlooking something. Thanks for letting me know. :)Becky
UPDATE - Your original post didn't mention them, but as several people pointed out, AFTER TAX contributions to traditional IRAs will be treated differently.WRJ
Bex76, even though your Roth conversion will not be tax free, it will still cost you less to convert while stocks are down than it will after they recover.So your basic idea is still excellent. Yes, its a great time to do a conversion. (It will still cost you some income taxes to do it--but less than otherwise.)That haircut is giving you a nice discount from the govt.
Do the tax math. Do you want to pay more in taxes or less? The obvious answer is less. Now may be the time to convert your IRA. Although you will pay some out in taxes, it will be less at this point in time than years down the road. You know what your tax bracket is right now. With the state of the economy and all of the "loans" our goverment is taking out to cover the bail out (I say loans because the money has to come from somewhere) they will need funds to cover the $700 billion. Where will the money come from? The tax payer. How will that happen? Raise tax rates. Not to mention the fact that most States are also in dire financial straits- how are they going to cover? Raise state income taxes. Depending on your age- you may want to look at a fixed index annuity. You will see gains as the market gains, but as the market goes down your annuity is safe from the loss as it freezes. Once the market comes back up, your annuity also starts to climb. There is no ground to make up.
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