Comments on: Structuring the Roth Conversion http://www.figuide.com/structuring-the-roth-conversion-a-cya-activity.html FiGuide's free daily tips provides short, actionable strategies to help you achieve a successful, worry-free retirement. Fri, 10 Feb 2012 19:56:01 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Jim Blankenship, CFP®, EA http://www.figuide.com/structuring-the-roth-conversion-a-cya-activity.html#comment-1296 Jim Blankenship, CFP®, EA Fri, 04 Dec 2009 02:56:10 +0000 http://financialducksinarow.com/?p=1812#comment-1296 Hi, Conor - On your first question regarding the tax on your conversion - the tax on a Roth conversion is based upon the year you enact the conversion. The exception is in 2010, when you can elect to have the entire conversion taxed at the 2010 rate or half at the 2011 rate and the other half at the 2012 rate. If you convert your IRA to a Roth in 2009, the tax on the conversion will be based on your income and the conversion amount in 2009. Your second question about the mechanics of the conversion is pretty straightforward - open the Roth IRA account (either at your current IRA custodian or a new custodian, it's your choice). Once the Roth account is established, put the paperwork in place to do a trustee-to-trustee transfer between the traditional IRA and the Roth IRA - making sure that it is clear to the custodian(s) that this transfer is a Roth conversion. This is necessary because the transaction will be reported as a distribution, and so it must be classified correctly. Then when you file your taxes, you'll also need to fill out Form 8606 (Part II) to indicate the conversion. You probably want to get this going ASAP if you want it done in 2009 - especially if you're going to a new custodian! Hope this covers your questions! If you run into issues don't hesitate to contact me. jb Hi, Conor -

On your first question regarding the tax on your conversion – the tax on a Roth conversion is based upon the year you enact the conversion. The exception is in 2010, when you can elect to have the entire conversion taxed at the 2010 rate or half at the 2011 rate and the other half at the 2012 rate. If you convert your IRA to a Roth in 2009, the tax on the conversion will be based on your income and the conversion amount in 2009.

Your second question about the mechanics of the conversion is pretty straightforward – open the Roth IRA account (either at your current IRA custodian or a new custodian, it’s your choice). Once the Roth account is established, put the paperwork in place to do a trustee-to-trustee transfer between the traditional IRA and the Roth IRA – making sure that it is clear to the custodian(s) that this transfer is a Roth conversion. This is necessary because the transaction will be reported as a distribution, and so it must be classified correctly. Then when you file your taxes, you’ll also need to fill out Form 8606 (Part II) to indicate the conversion. You probably want to get this going ASAP if you want it done in 2009 – especially if you’re going to a new custodian!

Hope this covers your questions! If you run into issues don’t hesitate to contact me.

jb

]]> By: Conor http://www.figuide.com/structuring-the-roth-conversion-a-cya-activity.html#comment-1294 Conor Fri, 04 Dec 2009 02:01:35 +0000 http://financialducksinarow.com/?p=1812#comment-1294 Hi Jim, I am currently a grad student who has a rollover IRA from a previous employer and am looking to take advantage of my very low tax rate for 2009 and roll over my IRA to my Roth IRA. I do expect my future tax rates to be much higher in the future. I don't plan on taking the money out of the Roth until I retire, but I want to confirm that if I rollover the IRA this year in 2009, that the tax I pay will be based on my 2009 income level tax (which as a grad student is pretty low) and not on my tax rate from when I was employed and contributing to my 401k. I plan on paying the tax due from my savings account so I'll keep the full amount in my IRA when I transfer it to a Roth IRA. My follow-up question is , how do I actually do the conversion. Is this something I can do through my brokerage account or do I simply close out my IRA, transfer it to my Roth IRA, and then fill out the appropriate tax form come tax season? Much Thanks and great articles! Conor Hi Jim,

I am currently a grad student who has a rollover IRA from a previous employer and am looking to take advantage of my very low tax rate for 2009 and roll over my IRA to my Roth IRA. I do expect my future tax rates to be much higher in the future. I don’t plan on taking the money out of the Roth until I retire, but I want to confirm that if I rollover the IRA this year in 2009, that the tax I pay will be based on my 2009 income level tax (which as a grad student is pretty low) and not on my tax rate from when I was employed and contributing to my 401k. I plan on paying the tax due from my savings account so I’ll keep the full amount in my IRA when I transfer it to a Roth IRA. My follow-up question is , how do I actually do the conversion. Is this something I can do through my brokerage account or do I simply close out my IRA, transfer it to my Roth IRA, and then fill out the appropriate tax form come tax season?

Much Thanks and great articles!

Conor

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