joans Posted March 2, 2009 Report Share Posted March 2, 2009 We have a client who is now invested in Traditional IRA and looking to rollover to different bank with higher interest. Question is: They are looking at rolling over to a Roth account. Me thinking out loud: They have not paid taxes on the traditional IRA, if they roll over to Roth, they will have to pay taxes on the amount that they are rolling over. Am I correct in this thinking or way out in left field. And if they do roll over to Roth, how do you enter on 1099-R? Any help would be appreciated. This would be considered for 2009 taxes, however trying to advise client how to handle correctly. Quote Link to comment Share on other sites More sharing options...
LindaB Posted March 2, 2009 Report Share Posted March 2, 2009 You're right that they will have to pay tax on the money if they convert from traditional to Roth IRA. Take a look at pub. 590 for all the details, as there are income limits to be able to do this. They might want to consider that if they will be in a lower tax bracket when they retire and take the money out, it might not make sense to pay tax on it now, when in the future they wouldn't have to pay tax on it anyway, even if it was still in a traditional IRA. Quote Link to comment Share on other sites More sharing options...
Catherine Posted March 2, 2009 Report Share Posted March 2, 2009 You're right that they will have to pay tax on the money if they convert from traditional to Roth IRA. Take a look at pub. 590 for all the details, as there are income limits to be able to do this. They might want to consider that if they will be in a lower tax bracket when they retire and take the money out, it might not make sense to pay tax on it now, when in the future they wouldn't have to pay tax on it anyway, even if it was still in a traditional IRA. Even if it turns out to make sense, it will have to be done in two steps. Either convert where it is to a Roth and then rollover, or rollover and then convert. But you can't take a traditional IRA and, IN THE ROLLOVER process, convert it to a Roth IRA. BTW, the income limits on conversions go away next year (for one year). I know a couple of folks who've been waiting for years now to convert some tiny little account with a couple hundred dollars in it... Catherine Quote Link to comment Share on other sites More sharing options...
joans Posted March 2, 2009 Author Report Share Posted March 2, 2009 Thanks for the ideas. I will present these to my clients, but it sounds that we are all on the same track:) I appreciate all the feedback. It's nice to be able to get different opinions on here. Makes tax season a little more bearable:) Sara Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 2, 2009 Report Share Posted March 2, 2009 Sara - I would just add here that, since the market is down (assuming he's invested in the stock market), I would guess that your client would be able to convert a lot more shares than he could have at this time last year. To me, that is a real attractive argument for converting. Of course, no one knows what will happen in the future... ---Rita Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 2, 2009 Report Share Posted March 2, 2009 Another factor that might favor the conversion is if he does not need the money. Traditional IRA must start distributions at 70½ whether needed or not. Roth does not have to ever be taken out. And Roth is nontaxable to heirs. So depending on the situation, that could be a plus or a minus. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 3, 2009 Report Share Posted March 3, 2009 Sara - I would just add here that, since the market is down (assuming he's invested in the stock market), I would guess that your client would be able to convert a lot more shares than he could have at this time last year. To me, that is a real attractive argument for converting. Of course, no one knows what will happen in the future... ---Rita I realize this morning that my input up there makes no sense if your client is converting 100% of the account. I was just thinking about him converting part of the account. You know, if he can pay tax on a $10,000 conversion, that's gonna be a lot more shares than probably ever before. Here's a question: What do you all think? Part of me is going, "OK invest now. Stocks are on sale!" Another part of me is going, "What if the whole market just goes down the crapper?" I have 20 years till retirement. All I know is the market has always rebounded. Up to now... Quote Link to comment Share on other sites More sharing options...
joans Posted March 3, 2009 Author Report Share Posted March 3, 2009 Regarding the stock market - I gues it depends on your outlook if the glass is half empty or half full. Personally, I have always tried to be the half full type. I believe that the US will bounce back and be strong again because of the nature of our citizens, however, with the politicians we have in there, Rep or Dem, I don't know if we stand a chance. I also, think we need to kick all of them out and vote new blood in that have been in the real world. Just my opinion for what it is worth. Sara Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 3, 2009 Report Share Posted March 3, 2009 Yeah, I would like to have confidence in the market. I have total confidence that if capitalism is ALLOWED to work, things would correct themselves. But, the folks in Washington are way too involved. In my short, illustrious life I have not seen anything like what is happening now. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 3, 2009 Report Share Posted March 3, 2009 Rita, if you have 20 years to retirement, it makes sense to be buying, as long as you buy conservatively. I'd go for well managed companies that sell things that will be selling even in hard times. Proctor & Gamble comes to mind. WalMart also. Johnson & Johnson. You get the idea. There are real bargains now, and I don't believe that any President or Party can totally bring down this country. DC may be crazy right now, but in two years we will have the opportunity to replace the ENTIRE CONGRESS, and I would not be surprised if that was what happened. I can not believe that the 'real people' who's work is what fuels this nation will stand for much more of what is going on now. And if we clean house in two years, we will start recovering pretty fast. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 3, 2009 Report Share Posted March 3, 2009 Rita, if you have 20 years to retirement, it makes sense to be buying, as long as you buy conservatively. I'd go for well managed companies that sell things that will be selling even in hard times. Proctor & Gamble comes to mind. WalMart also. Johnson & Johnson. You get the idea. There are real bargains now, and I don't believe that any President or Party can totally bring down this country. DC may be crazy right now, but in two years we will have the opportunity to replace the ENTIRE CONGRESS, and I would not be surprised if that was what happened. I can not believe that the 'real people' who's work is what fuels this nation will stand for much more of what is going on now. And if we clean house in two years, we will start recovering pretty fast. I sure hope so. I can't get my mind around all this money that is being spent. I can just see my kids (and me!) paying some ridiculous tax rate. Even more ridiculous than what I ALREADY pay. I get so disgusted when someone comes in here that knows how to cheat and gets $4000 EIC. Drives off in a $40,000 pick up. I'm all for helping people who need help. But, nobody "deserves" to own a home. You WORK for that. Sorry, I lost it there for a moment. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 4, 2009 Report Share Posted March 4, 2009 Well, like I say, if we change the makeup of the House SIGNIFICANTLY in two years, we can get a bunch of this spending stopped, since a lot of it is not for several years anyway. It will be up to the people to be wiling to make major changes, but it can be done. But we better get off the politics of it, don't want to start a new fight. Quote Link to comment Share on other sites More sharing options...
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