IRA Conversion Scenario
I am temporarily out of work and would like to leverage this opportunity to convert part of my traditional IRA balance to a Roth IRA account. I have a few questions:
Assumptions:
• Without additional income for the rest of the year, my income for the year is $80,000.
• My traditional IRA balance is $200,000.
• I currently have no property ownership (i.e. no mortgage or property tax responsibility)
• I will have $1500 charity donation write-offs.
• I will have $1200 interest income.
• I will have a $3000 investment loss write-off for the year.
• I am planning to pay the conversation tax from a separate cash pool.
Questions:
• Given the condition above, am I correct that my AGI is $71350 ($80000 + $1200 – $1500 – $3000 – $5350 (standard deduction))?
• If I want to stay within the 28% Federal tax bracket, is it correct that I should convert no more than $89,500 to Roth IRA?
• Am I correct that the tax incurred as a result of this conversion will be $24887.5 (($5750 X 0.25) + ($83750 X 0.28))?
• What is the deadline for the conversion? Is the end of the year the deadline or do we have until April 15 (like the contribution)?
I appreciate any assistance you can provide.
Sincerely,
Gregory 🙄
Permalink Submitted by Edward Czapor on Tue, 2007-08-14 16:49
Your AGI without the conversion is $78,200, since your charitable contribution does not figure into this figure, and would be used only if you itemized deductions to reduce taxable income. Under your scenario I calculate that you could convert $91,128 to put you at the top of the 28% tax bracket which is $160,850 taxable income. This includes a reduction of your personal exemption to $3,128 from $3,400 due to income phaseout, and assuming the entire conversion is taxable (no basis due to nondeductible contributions). The conversion would cost you an additional $25,356 in Federal tax. If you are able to itemize, the calculation becomes more complicated because your itemized deductions would also be reduced due to income phaseout, and you possibly could also be subject to the AMT tax. I would suggest consulting with a tax pro to make sure you have everything covered before converting. The conversion must be completed by the end of the year.
Ed C.