Message Font: Serif | Sans-Serif
 
No. of Recommendations: 3
vkg - I have been using TurboTax to do my taxes for as long as I can remember. So, I am hoping that the software is somehow keeping track of this. Otherwise I am going to have to find old copies of years of returns to see if in that year the contributions were deductible are not. That would be a huge process.

If you imported the previous years information every year then Turbo Tax should have created the correct forms.

Unlike a 401K, IRA administrators have no idea how much of an IRA contribution is deductible or non-deductible.
Print the post Back To Top
No. of Recommendations: 14
1) Is there a deadline that I must decide and perform this conversion to have it qualify for the tax year 2019 ?

The conversion must be completed by Dec 31, 2019. Given delays that can occur due to holidays and high activity at the end of the year, I would suggest starting no later than Dec 20, if the 2 accounts are at the same brokerage. You will need to allow more time if the accounts are at different brokerages.

2) Do I have to convert every single IRA account to the ROTH or can I pick and choose which IRA accounts or make a partial conversion? (I have been getting conflicting information on this one)

You can do partial conversions. But if your intent is to be able to do the 'back door Roth' process because in the future you will make too much to qualify for regular Roth conversions, it's best if all of your Traditional IRAs have a $0 balance - either by moving them to an employer's 401(k) or by converting them to a Roth.

3) How do I figure out the taxes I would owe on the conversion? Is there a process or method that I must follow so that I am paying the correct taxes? Has anyone done this calculation themselves or is everyone using a CPA or some other professional?

You will get a form 1099-R from your brokerage. You will use that to fill out a form 8606. This can easily be done using tax software of your choice. For a rough estimate, you can just figure the taxes on the amount converted by using what you think your marginal tax bracket will be, multiplied by the amount converted.

4) Are the taxes paid immediately after the conversion or due with your tax return filed for that year it applies to?

They are due with the tax return for the year you did the conversion. That said - you will need to be sure you make appropriate estimated tax payments, or have enough withheld from paychecks, so that you will either pay the taxes owed, or meet a safe harbor, so you can avoid underpayment penalties. Note: If you have taxes withheld from the Traditional IRA and are under 59 1/2, you will owe a penalty on the withheld amount. So it's really best to do these conversions only if you have the money from outside the Traditional IRA to pay the taxes.

5) Finally, How long of a process does this generally take so I can time it right if there is a deadline to observe?

It depends on your brokerage, although I suggested a timeline above.

AJ
Print the post Back To Top
No. of Recommendations: 2
as a professional procrastinator, I've found Etrade (in an office) and American Funds (over the phone) to be very accomodating for last-minute transfers to roth.

So with thousands of latino males crossing the border daily, we still can't field a decent men's team?? (In the past, the government has given at least one immigrant the bum's rush into citizenship before, in order to get him on the national team). I turned off the game yesterday after venuzuala's 3rd goal.

Not sure why Japan was a 2 1/2 goal favorite today. Argentina has a strong women's program. Their defense is playing very well. They might even make it out of their bracket. (Having a kir royale with a baquette and brie while watching the game.)
Print the post Back To Top
No. of Recommendations: 0
Thanks AJ for your detailed answers to my questions, its a little less daunting/scary a task now and I can now look up a few forms you mentioned. I am assuming that one of those forms will also have a place to declare any non-deductible IRAs that will be converted to a roth as well?

I was under the impression that I or the brokerage was going to have to get into the nitty gritty of figuring out the value of the IRAs when they were opened and the value of them at conversion to tax the difference, which would be daunting if I had to find old paper records,as electronic records only go back so far depending on the brokerage. Is this impression correct?
Print the post Back To Top
No. of Recommendations: 0
I was under the impression that I or the brokerage was going to have to get into the nitty gritty of figuring out the value of the IRAs when they were opened and the value of them at conversion to tax the difference, which would be daunting if I had to find old paper records,as electronic records only go back so far depending on the brokerage. Is this impression correct?

Do you have after tax IRA contributions that weren't reported on an 8606? An 8606 with the cumulative after tax IRA contributions should have been filed every year.

If the only after tax IRA contributions are the current year, all you need is the total value of the IRAs on December 31th.
Print the post Back To Top
No. of Recommendations: 2
I am assuming that one of those forms will also have a place to declare any non-deductible IRAs that will be converted to a roth as well?

Yes, the Form 8606 is where you will report your non-deductible contributions.

I was under the impression that I or the brokerage was going to have to get into the nitty gritty of figuring out the value of the IRAs when they were opened and the value of them at conversion to tax the difference, which would be daunting if I had to find old paper records,as electronic records only go back so far depending on the brokerage. Is this impression correct?

Sorry, your impression is incorrect. IRAs are like Vegas - what happens in the IRA (at least as far as cost basis and gains) stays in the IRA. Your taxable amount is the value of what you are converting when the conversion occurs. If you have any basis from non-deductible contributions in the IRA that was previously reported on a Form 8606, your entries on the Form 8606 will adjust the conversion amount appropriately.

AJ
Print the post Back To Top
No. of Recommendations: 0
"Do you have after tax IRA contributions that weren't reported on an 8606? An 8606 with the cumulative after tax IRA contributions should have been filed every year"

vkg - I have been using TurboTax to do my taxes for as long as I can remember. So, I am hoping that the software is somehow keeping track of this. Otherwise I am going to have to find old copies of years of returns to see if in that year the contributions were deductible are not. That would be a huge process.
Print the post Back To Top
No. of Recommendations: 0
"Sorry, your impression is incorrect. IRAs are like Vegas - what happens in the IRA (at least as far as cost basis and gains) stays in the IRA. Your taxable amount is the value of what you are converting when the conversion occurs. If you have any basis from non-deductible contributions in the IRA that was previously reported on a Form 8606, your entries on the Form 8606 will adjust the conversion amount appropriately.

AJ "

Hmm...I guess that makes sense. It certainly makes things easier. However, it also means that if a person converts early or midway through the year and there is a sizeable tax bill owed, then at the end of the year (like last December when the stock market took a nose dive) if there is a drop in the account and the account value is worth much less, then you would be paying taxes on an account that fell in value and should be paying less taxes on it.

I think there was an article about some change in the laws regarding conversions back to an ira in scenerios like the one above where people who had converted earlier in the year then wanted to reconvert back because the value of the acct fell but they had to pay taxes (like being in the bucket) on non-existent gains come end of year. The new changes somehow prevented the ability to reconvert or made it harder...or there was some deadline for it. Need to find that article again. That would be a good reason to wait until near the end of the year.
Print the post Back To Top
No. of Recommendations: 6
Hmm...I guess that makes sense. It certainly makes things easier. However, it also means that if a person converts early or midway through the year and there is a sizeable tax bill owed, then at the end of the year (like last December when the stock market took a nose dive) if there is a drop in the account and the account value is worth much less, then you would be paying taxes on an account that fell in value and should be paying less taxes on it.

On the other hand, if you make the conversion early or midway through the year, and it goes up a lot in December, do you feel like you should be paying more in taxes? I'm guessing not - you're probably saying something like 'glad I converted when I did'. Besides that, as long as you didn't sell in December of last year and just kept everything, most (if not all) of the losses were probably recouped by March or April of this year.

I think there was an article about some change in the laws regarding conversions back to an ira in scenerios like the one above where people who had converted earlier in the year then wanted to reconvert back because the value of the acct fell but they had to pay taxes (like being in the bucket) on non-existent gains come end of year. The new changes somehow prevented the ability to reconvert or made it harder...or there was some deadline for it. Need to find that article again.

Before the TCJA, you were able to recharacterize conversions to a Roth, so that you could 'fix' the problem of paying more in taxes on assets that had dropped significantly in value, by recharacterizing the conversion back into a Traditional IRA. However, because there was a waiting time between when you recharacterized and when you could do another conversion, if the assets rose again in value before the waiting period was up, you may have ended up paying as much or more in taxes.

The TCJA did eliminate the ability to recharacterize Roth conversions, so this form of market timing is no longer an option.

That would be a good reason to wait until near the end of the year.

Except that if the assets in your Traditional IRA go up significantly in value between early/mid-year and the end of the year, you could end up paying significantly more in taxes by waiting to convert.

If you're worried about the difference in taxes, you could do a form of dollar cost averaging. Say you have 1200 shares of a stock that you want to convert. Just convert 100 shares on, say, the 10th trading day of every month, whether the stock has gone up, down or sideways. You will convert 1200 shares during the year, at 12 different price points. That should be enough price points that you will have participated in most of the up/down performance during the year.

AJ
Print the post Back To Top
No. of Recommendations: 3
vkg - I have been using TurboTax to do my taxes for as long as I can remember. So, I am hoping that the software is somehow keeping track of this. Otherwise I am going to have to find old copies of years of returns to see if in that year the contributions were deductible are not. That would be a huge process.

If you imported the previous years information every year then Turbo Tax should have created the correct forms.

Unlike a 401K, IRA administrators have no idea how much of an IRA contribution is deductible or non-deductible.
Print the post Back To Top
No. of Recommendations: 1
If you're worried about the difference in taxes, you could do a form of dollar cost averaging. Say you have 1200 shares of a stock that you want to convert. Just convert 100 shares on, say, the 10th trading day of every month, whether the stock has gone up, down or sideways. You will convert 1200 shares during the year, at 12 different price points. That should be enough price points that you will have participated in most of the up/down performance during the year.

I did something like this. Then I got a notice from Vanguard that I was close to dropping below the $50k required minimum for the (Admiral mutual) fund where I'd been keeping all my Traditional IRA money. So, being the "keep it simple" sort, I just converted the remaining balance.

Hindsight will tell whether the timing was good or not, if I care to look back, which I probably won't.
Print the post Back To Top
No. of Recommendations: 0
"If you're worried about the difference in taxes, you could do a form of dollar cost averaging. Say you have 1200 shares of a stock that you want to convert. Just convert 100 shares on, say, the 10th trading day of every month, whether the stock has gone up, down or sideways. You will convert 1200 shares during the year, at 12 different price points. That should be enough price points that you will have participated in most of the up/down performance during the year.

AJ "

Ohh, I like that idea. Didn't know it was possible to do something like that! Thought it was a process where you indicated which account you wanted to convert or dollar amount of the account you wanted to convert. Had no idea that you could actually pick the number of shares of a particular stock in the account to convert. I really appreciate your feedback and participation on this thread. Thanks!
Print the post Back To Top
No. of Recommendations: 0
"I did something like this. Then I got a notice from Vanguard that I was close to dropping below the $50k required minimum for the (Admiral mutual) fund where I'd been keeping all my Traditional IRA money. So, being the "keep it simple" sort, I just converted the remaining balance."

YewGuise- That's an interesting tip. Vanguard has other Mutual Funds with even lower thresholds before you lose the Admiral shares status. Definintely something to think about if you have assorted MFs with Vanguard in an IRA that you want to convert.
Print the post Back To Top