Tax liability on converting Non-deductible IRA to a Roth
Client wants to convert her non-deductible IRA to a Roth IRA. How do we determine what (if any) tax liability she may have?
Client wants to convert her non-deductible IRA to a Roth IRA. How do we determine what (if any) tax liability she may have?
Permalink Submitted by Alan Spross on Thu, 2012-03-01 22:13
The client must have reported all prior non deductible contributions on Form 8606 to document them with the IRS in the year of the contribution. If there are any after tax employer plan contributions that have been rolled over to an IRA, this basis should be reported on Form 8606 line 2 when the next distribution is made if not reported earlier.
For the conversion taxation, Form 8606 is also followed to determine the taxable/non taxable amount of the conversion. The balance of ALL owned traditional IRAs, SEP IRAs and SIMPLE IRAs must be included when entering the total IRA value. As a result of this it does not matter which IRA account is used for the conversion if there is more than one such account. The % of non deductible and after tax contributions
of the total values is the tax free % of the conversion.
If client has not filed the necessary 8606 forms in the past, they may retroactively file them with the IRS without penalty using each year’s edition that applies, but it might be quite a research project to determine which years were missed.
Permalink Submitted by danica bal on Fri, 2012-03-02 04:31
You can take deductions on your federal income taxes for charitable contributions you make. However, there are certain rules you need to follow. Tax cheats will frequently inflate the value of charitable contributions. However, the IRS knows this and keeps a peeled eye. Taxpayers can end up costing themselves more in charges if they do not take care in how they value charitable presents on their tax returns. The following suggestions will help you to avoid an audit. [url=https://personalmoneynetwork.com/moneyblog/2012/02/23/deduct-charitable-… charitable gifts and avoiding an audit[/url]. The IRS is offering a special deductions for elderly taxpayers with individual retirement accounts. Taxpayers older than 70 can transfer up to $100,000 per year to a qualified charity. These special contributions require no itemization and provide no deduction. However, the donation is tax-free and it will lower taxable income.
Permalink Submitted by Peter Lingane on Fri, 2012-03-02 05:20
The opportunity to make “qualified charitable contributions” from IRAs expired at the end of 2011.