Converting Part of RA to Roth and Taxes

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Topic Author
Sbsuocbw
Posts: 10
Joined: Sun Oct 17, 2021 9:08 pm

Converting Part of RA to Roth and Taxes

Post by Sbsuocbw »

Hello Fellow Bogleheads

Earlier this year, for TAX Year 2021 I decided to convert a small sum (about 3.5k) from a qualified plan (RA) from an employer in the past to a Roth IRA.
Did not have any taxes deducted as I thought I could cancel out the taxes owed by contributing the same amount to a Traditional IRA in SO's name.

Questions:
1) Will I still owe taxes on the Roth conversion?
2) Will I owe taxes on my entire corpus of Retirement Assests (Between Traditional IRAs, SEP, SRA etc. amounts to about 290K)?


Thanks.

OHIO
Silk McCue
Posts: 8953
Joined: Thu Feb 25, 2016 6:11 pm

Re: Converting Part of RA to Roth and Taxes

Post by Silk McCue »

Welcome to Bogleheads!

1) Taxes owed are based upon the totality of your income, deductions and credits. Converting to Roth increases taxable amount due while contributing to a Traditional IRA reduces the taxable amount due. You can use tax software to see how various actions impact your tax liability. If you live in a state with an income tax you will need to evaluate that as well.

2) Your question about your “entire corpus” is unclear. Have you done anything with those various accounts this year that would trigger a taxable event?

Cheers
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retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Converting Part of RA to Roth and Taxes

Post by retiredjg »

Welcome to the forum. :happy

There is not nearly enough information to answer a question like this. My guess is you were trying to keep it simple, but that doesn't work well in a case like this.

Are you married to the SO? Can SO actually deduct a contribution to traditional IRA (not everybody can)? And so on.

So yes, taxes will be due on the Roth conversion income but it is also possible the taxes will be "cancelled out" by a contribution to an IRA.

2) Will I owe taxes on my entire corpus of Retirement Assests (Between Traditional IRAs, SEP, SRA etc. amounts to about 290K)?
Well, yes....eventually....as the money is removed from your retirement accounts, assuming it has not yet been taxed.

Tell us more.
N.Y.Cab
Posts: 412
Joined: Wed Feb 07, 2018 7:46 pm

Re: Converting Part of RA to Roth and Taxes

Post by N.Y.Cab »

Expect to receive a 1099-R in January 2022 from the old plan. The taxable amount in box 2a should be the same as the gross distribution in box 1 (about 3.5k) if there’s no after-tax contribution.
Topic Author
Sbsuocbw
Posts: 10
Joined: Sun Oct 17, 2021 9:08 pm

Re: Converting Part of RA to Roth and Taxes

Post by Sbsuocbw »

Thanks for the replies.

retiredjg, Yes I am married to SO, and yes, our incomes are low enough to have a fully deductible IRA for her.
Silk McCue, The only taxable thing I have done with all my retirement accounts ("entire corpus) is to do this conversion. No other contributions or withdrawals.

OHIO
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