Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 4
You've pretty much got it. Your examples assume there is no other income. And you're ignoring the standard (or itemized) deduction and personal exemptions. But as far as the tax calculation goes, you are correct.

1. Convert $50,000 TIRA, fully taxable, to Roth, using savings for taxes.
Cash in $50,000 worth of stock that has a $20,000 LT cap gain.
???Would be taxed on only the $50K conversion???


Technically, your taxable income would be $70k. Of that, $50k is taxed at ordinary rates (some at 10%, some at 15%), and $20k is taxed at 0%.

The main reason to mention the distinction is that the capital gain is still income. So if you have anything that is income sensitive (such as medical deductions which have to be greater than 10% (or 7.5% if you're over 65) of your income, the LT capital gain will affect that.

2. Convert $70,000 TIRA, fully taxable, to Roth, using savings for taxes.
Cash in $50,000 worth of stock that has a $20,000 LT cap gain.
???Taxed regular rates on $70K plus ($90,000-$73,800) at 15%???


Again, the taxable income would be $90k. $70k is taxed at ordinary rates (10% and 15%), the first part of the LT Cap Gain - about $4k - is taxed at 0%, and the balance of the gain is taxed at 15%.

--Peter
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.