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Should I convert my Trad IRA this year?
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Confused
May 8, 2012, 12:59:27 PM5/8/12
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In 2010 and 2011 I had very little income, but a lot of deductions.
I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
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I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
ira smilovitz
May 8, 2012, 1:52:40 PM5/8/12
to
On Tuesday, May 8, 2012 12:59:27 PM UTC-4, Confused wrote:
> In 2010 and 2011 I had very little income, but a lot of deductions.
> I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
>
> This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
>
> Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
The best advice is to run the numbers and see for yourself. All of the consumer tax programs have planning modules that should let you run what-if scenarios using the 2012 tax rules as of the date the software was released.
> In 2010 and 2011 I had very little income, but a lot of deductions.
> I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
>
> This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
>
> Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
Ira Smilovitz
JoeTaxpayer
May 8, 2012, 1:51:12 PM5/8/12
to
On 5/8/12 12:59 PM, Confused wrote:
> In 2010 and 2011 I had very little income, but a lot of deductions.
> I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
>
> This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
>
> Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
I've read enough to offer my opinion, though.
> In 2010 and 2011 I had very little income, but a lot of deductions.
> I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
>
> This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
>
> Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
Convert, but set up 3 Roths to receive the investments. When doing your
2012 taxes, you will have two things to look at. The same thing you've
been tracking, i.e. the "phantom marginal rate" which is one piece of
the puzzle.
But - by converting to 3 (or more) accounts, you may have the chance to
divide the conversion by asset class or even individual stock, and in
the end, say that you see the phantom rate is 40% or $4000 on the $10K
in stock you converted. But that particular stock went through the roof,
and is now worth $20,000. See where I'm going with this?
Obviously, any assets that dropped should be recharacterized. But those
that shot up can be ok to leave converted even if the tax rate is higher.
The current conversion rules allow for multiple chances to convert and
get the best of both worlds. Imagine how it would be to have paid 25% to
convert Apple stock years ago, say sub-$100.
Confused
May 8, 2012, 5:04:57 PM5/8/12
to
On Tuesday, May 8, 2012 1:52:40 PM UTC-4, ira smilovitz wrote:
> On Tuesday, May 8, 2012 12:59:27 PM UTC-4, Confused wrote:
> > In 2010 and 2011 I had very little income, but a lot of deductions.
> > I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
> >
> > This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
> >
> > Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
>
> The best advice is to run the numbers and see for yourself. All of the consumer tax programs have planning modules that should let you run what-if scenarios using the 2012 tax rules as of the date the software was released.
>
> Ira Smilovitz
>
I am not sure how to do that, but I put a large capital gain into my 2011 return and tried various numbers.
> On Tuesday, May 8, 2012 12:59:27 PM UTC-4, Confused wrote:
> > In 2010 and 2011 I had very little income, but a lot of deductions.
> > I converted my trad IRA into a Roth. That put me into AMT and produced a frighteningly large marginal tax rate. I recharacterized most of my conversions each year.
> >
> > This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
> >
> > Obviously you haven't seen my tax returns or incomes so you can't give me advice, but does my proposal at least make sense (if I have already lost my deductions to AMT, a conversion can't do more damage)?
>
> The best advice is to run the numbers and see for yourself. All of the consumer tax programs have planning modules that should let you run what-if scenarios using the 2012 tax rules as of the date the software was released.
>
> Ira Smilovitz
>
Seems to work reasonably well. My marginal rate (Fed & NY) is 40%. That is dreadful, but confirms the concept as it is at least normal.
Now I have to decide if I want to mess with it for the next 10 years, or bite the bullet and do it this year and get it over with. (my phantom marginal rate last year was 60%, so I had to recharacterize 70% of it to get it down)
Phil Marti
May 9, 2012, 6:01:46 AM5/9/12
to
On Tuesday, May 8, 2012 12:59:27 PM UTC-4, Confused wrote:
> This year I look to have substantial capital gains. I originally thought I would skip my conversion this year since AMT is inevitable. But then I realized I will lose my deductions to AMT whether I convert my IRA or not; so I might as well convert it.
Why the big rush to convert?
Phil Marti
VITA/TCE Volunteer
Clarksburg, MD
removeps-groups
May 10, 2012, 8:18:32 PM5/10/12
to
"Confused" <*@lippman.info> wrote in message
news:15870614.3339.1336496126198.JavaMail.geo-discussion-forums@ynbv36...
> In 2010 and 2011 I had very little income, but a lot of deductions.
> I converted my trad IRA into a Roth. That put me into AMT and produced a
> frighteningly large marginal tax rate. I recharacterized most of my
> conversions each year.
>
> This year I look to have substantial capital gains. I originally thought
> I would skip my conversion this year since AMT is inevitable. But then I
> realized I will lose my deductions to AMT whether I convert my IRA or not;
> so I might as well convert it.
Some deductions are allowed under AMT, such as mortgage interest, charitable
contributions, gambling, estate, part of medical. Some of those not
allowed: state tax, SDI tax, property tax, misc deductions subject to 2%.
news:15870614.3339.1336496126198.JavaMail.geo-discussion-forums@ynbv36...
> In 2010 and 2011 I had very little income, but a lot of deductions.
> I converted my trad IRA into a Roth. That put me into AMT and produced a
> frighteningly large marginal tax rate. I recharacterized most of my
> conversions each year.
>
> This year I look to have substantial capital gains. I originally thought
> I would skip my conversion this year since AMT is inevitable. But then I
> realized I will lose my deductions to AMT whether I convert my IRA or not;
> so I might as well convert it.
contributions, gambling, estate, part of medical. Some of those not
allowed: state tax, SDI tax, property tax, misc deductions subject to 2%.
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