Convert Rollover IRA to Roth IRA: Any penalty other than taxes?
m...@privacy.net
Also.... if taking early withdrawals (before
59.5)...... is there any advantage form converting the
Rollover to Roth BEFORE doing that?
Or is the end result still the same?
clams_casino
There is a maximum income - something like 100k total income, up to
which you can rollover without penalty (except paying the taxes).
It makes sense to rollover only if that amount doesn't get taxed at the
next highest tax bracket (maximize your current bracket - probably best
to maximize a 15% bracket, but for most, it may not be worth rolling
over any 28% taxable money). It may make much sense to roll over in
today's depressed market, assuming there will be any bounce in the
market in the next few years. Waiting may result in more taxes.
m...@privacy.net
>
>There is a maximum income - something like 100k total income, up to
>which you can rollover without penalty (except paying the taxes).
I have no income this year as am laid off
m...@privacy.net
>Try asking the agency that's holding your IRA.
Nope Im asking here first
clams_casino
1) Any rollover made in 2009 will be applicable to 2009 income (too late
to affect 2008).
2) It's only February - You can likely rollover a significant portion
(best while the market is down), but keep in mind you will likely have
some income - unemployment & severance is considered taxable income.
3) I should have also pointed out that if you do traditional IRA to
Roth rollover and the market finds its way significantly lower at year's
end, you can reverse the rollover (have your agent recharacterize the
rollover) where the IRS will treat it like never happened (no taxes on
the recharacterized portion). To minimize confusion, I recommend doing
a full 100% recharacterization, if you do it. Partials can get quite
confusing come tax time.
Of course, if the market gains, that's all tax free gain. There's
really not too much to lose doing the rollover - especially when the
market is down. Generally speaking, it's best not to use rollover
money to pay the income tax. To maintain the highest amount in the
Roth, you can pay the taxes with other income - assuming you have
adequate income. In that case, you may need to submit estimated state
& federal taxes, if the rollover is significantly high (perhaps $10k-20k
or more). If you are talking <$10k, you can probably wait until next
year to worry about the taxes.