Although that might sound aggressive and unnecessary, there are many scenarios where a Roth IRA conversion can make sense. For example, let’s say you’re not earning a lot of money in a specific year and you want to convert to a Roth IRA while paying an extremely low tax rate. You co...
" Paddock says. But be careful. If you wait until day 61 or later, your withdrawal is subject to penalties and possible taxes if you haven't met the "5-year rule" and have investment gains in the Roth IRA, Paddock notes
This means you would have to pay a penalty on that money if you chose to take distributions within a five-year period after the conversion.Again, these are just some of the scenarios where you would want to think long and hard before converting another retirement account to a Roth IRA. ...
Suppose you just quit your full-time job and want to start building your Roth IRA Conversion Ladder. You expect to only use qualified dividends and long-term capital gains for income during your first year of retirement so that means you have $10,000 of tax space you can use for a compl...
IRA Contribution Conversion Isn’t Recharacterization Basis From Previous Year Pro-Rata Rule Taxable Income from Backdoor Roth Troubleshooting Fresh Start Conversion Is Taxed Self vs Spouse What To Report You report on the tax return your contribution to a traditional IRA *for* that year, and you...
Although Roth IRAs do not have RMDs, they do have a rule preventing owners from taking distributions until they've owned the account for five years — another reason to start planning early. Roth versus traditional IRA tax differences Roth and traditional IRAs offer tax advantages for long-term...
But when we apply the 4% rule to their Traditional IRA balance, we see that they can withdraw $30,695 per year before taxes. Then, when we add the $22,968 in Social Security income andestimate their tax liability, we see that they only owe $748 per year in taxes, leaving them with...
It’s called the pro-rata rule, where you have to bring in a portion of those existing IRAs into the tax calculation. Valerie: It’s like the punch is already mixed up. The Kool-Aid and the water, it’s all together, you can’t just separate them, the IRA. Jodi: You might ...
1) Do I need to consider the pro-rata rule which factors in my pre-tax IRA funds into the calculation? 2) Regarding the pro-rata rule for Roth conversions, does the mix of pre and post tax contributions include both 401k and IRAs or is that separate?
Redeposit Scenarios Let’s look at some examples for clarity. Check with a tax expert to be sure these apply to you and if there are any exceptions or changes to the rules. Example 1 You’ve got $30,000 in a Roth IRA. You’ve contributed $20,000 in prior tax years and $6,500 ...