IRA Conversion to Roth

[John Valko]

I need some info on IRAs. When converting a regular IRA to a Roth, I understand we have to claim the amount on our taxes but isn't there something in the tax laws either for this year or next year where we can convert conventional IRAs to Roth's and be able to spread the taxes over several years. Is that starting in 2009 or 2010? How many years can we spread the taxes over?

Also, if we take some of the money from our 403b ( mostly mutual funds) and put it in a Roth IRA within the 403b, do we have to pay the tax now, or do we wait until we take it out of our 403b?

[Roberts]

This thread is a perfect example of why individuals handling their own finances (and taxes) can turn into a nightmare. When someone tells you the fees of a financial professional aren't worth it, review to this thread.

[Gretel]

Excuse me Mr/Mrs Roberts and sorry John Valko. I don't know the answer to your question but I am certain Robert forgot that non-professionals cannot post any longer on this board. I assume anyone who buys TTB is a professional.

[Roberts]

Excuse me Mr/Mrs Roberts and sorry John Valko. I don't know the answer to your question but I am certain Robert forgot that non-professionals cannot post any longer on this board. I assume anyone who buys TTB is a professional.

We have other board members that bash financial planners / investment managers because anyone can do that sort of thing for free. My point (obviously not well expressed) is that even a tax professional can find difficulty in what most investment managers would find routine.

As for John's questions:
1. In 2010 you can convert the money to a Roth and you will be able to spread the tax payments over 2 years instead of 1. Right now this is only for 2010 conversions because they have expanded who qualifies for this conversion. Normally you wouldn't spread out the tax payments, you would spread out the conversions (and the tax realizations).

2. If you designate a Roth IRA inside of a 403-b and move funds into it, it's going to be taxable. If you were going to wait until you withdrew the money to pay your taxes, why move it into a Roth?

Be careful when moving money to a Roth IRA. It sounds like a great idea and possibly will turn out that way since we all expect tax rates to go up in the future (considering the government debt load). You are betting that the US Government won't reverse the rules on Roth IRAs and make some or all of it taxable later. Think about it, they are taxing social security. It isn't out of the realm of possibility that they'll start taxing at least some of the Roth IRA distributions in the future. If they do, you've double taxed yourself.

[OtisMozzetti]

tax-exempt income into Social Security worksheet

It isn't out of the realm of possibility that they'll start taxing at least some of the Roth IRA distributions in the future.

The worksheet for calculating the taxable portion of Social Security benefits currently includes tax-exempt interest. It isn't far-fetched that a federal government which has an enormous budget deficit would put the non-taxable earnings (beyond the basis) portion of Roth IRA distributions likewise into the Social Security worksheet.

[erchess]

Taxable SS and Roth

Don't most people who have Roths and draw Social Security already pay tax on the maximum percentage of the Social Security?

[Roberts]

The worksheet for calculating the taxable portion of Social Security benefits currently includes tax-exempt interest. It isn't far-fetched that a federal government which has an enormous budget deficit would put the non-taxable earnings (beyond the basis) portion of Roth IRA distributions likewise into the Social Security worksheet.

How many people do you know keep track of the basis in their Roth IRAs? Since it isn't relevant right now, I'd bet considerably less than 20% would keep a solid accounting of that.

It is estimated the current cost (NPV) of meeting our unfunded liabilities (Medicare, Social Security, drug benefit...) plus our current debt is almost $62 trillion. 60 Minutes did a report on this a while back. Medicare is bankrupt in 7-8 years (CBO estimate) and about 8 years after that Social Security will be broke. We've got massive problems coming down the road and tax planning is a complete guess. I personally make contributions to a Roth but honestly I don't know if that's a good idea.

Both parties have known this was coming for decades so this isn't a party bash. It's a government bash.

[OtisMozzetti]

we are both correct

Don't most people who have Roths and draw Social Security already pay tax on the maximum percentage of the Social Security?

Erchess,

You are correct that many of those who have Roths are already paying federal tax on 85% of any Social Security benefits they receive. But, for those who aren't thus far paying federal tax on 85% of their Social Security benefits, it would turn out to be a way to patch up a few billion dollars of the federal budget deficit. It makes as much sense as does the inclusion of municipal bond tax exempt interest on the Social Security worksheet.

It is true that determining the amount of basis recovery vs. the amount of tax-exempt earnings would be problematic with many taxpayers.

[dsi]

What became of John Valko, the OP?

[John Valko]

I'm here and listening

Thank you all for your imput. Much appreciated.