Income Tax for Traditional IRA Conversion to Roth

[richie78]

Texas is my state

I've tried to understand the conversion of my Traditional IRA to a ROTH IRA , but I cannot get a clear understanding of how to treat the conversion amounts, and how such amounts affect my AGI.

I know that if I take a distribution from my traditional IRA, and keep it, then I must include the amount in my AGI for income tax purposes.

However, if I convert my traditional IRA into a ROTH IRA, it's not clear to me what happens to my AGI when the conversion is completed. On the one hand, there appears to be an AGI max limit that can't be exceeded, and still be able to make the conversion to a ROTH, ie max AGI is $100,000. But I have seen another reference that says for conversion purposes I do not consider the conversion amount as part of my AGI computation to determine whether I exceed the limit and would be thereby prohibited from making such a conversion. This would suggest to me that for conversion purposes, the AGI limit computation considers all other received income, and does not include the conversion amount. Is this a correct interpretation? Can anyone address this AGI impact?

[llworking]

Texas is my state

I've tried to understand the conversion of my Traditional IRA to a ROTH IRA , but I cannot get a clear understanding of how to treat the conversion amounts, and how such amounts affect my AGI.

I know that if I take a distribution from my traditional IRA, and keep it, then I must include the amount in my AGI for income tax purposes.

However, if I convert my traditional IRA into a ROTH IRA, it's not clear to me what happens to my AGI when the conversion is completed. On the one hand, there appears to be an AGI max limit that can't be exceeded, and still be able to make the conversion to a ROTH, ie max AGI is $100,000. But I have seen another reference that says for conversion purposes I do not consider the conversion amount as part of my AGI computation to determine whether I exceed the limit and would be thereby prohibited from making such a conversion. This would suggest to me that for conversion purposes, the AGI limit computation considers all other received income, and does not include the conversion amount. Is this a correct interpretation? Can anyone address this AGI impact?

Read IRS Publication 590, and the instructions for form 8606. Both are available at irs.gov

[richie78]

Read IRS Publication 590, and the instructions for form 8606. Both are available at irs.gov

Yes, I have read pub 590, and that's why I am writing this inquiry. It's not clear about how the IRA withdrawal is handled when determining the AGI limit criterion for conversion to the ROTH. Since you seem to be knowledgeable about this, can you tell me if the amount to be converted from my IRA is included in the AGI Limit calculation? For example, if the max AGI is as stated $100,000, and I presently have an AGI of $95,000 in other income, if I wish to convert my $10,000 IRA to a ROTH, do I add the $10,000 to my other income AGI of $95,000 bringing my total AGI to $105,000. If so then I can not convert it to a ROTH because I've exceeded the max AGI Limit of $100,000. But if I don't have to include that amount of the IRA that I want to convert to a ROTH in the AGI calculation then I would be able to make the conversion. And thet's specifically what I haven't been able to understand from reading the Pub 590. What's the answer? Which is the correct interpretation?

[llworking]

Yes, I have read pub 590, and that's why I am writing this inquiry. It's not clear about how the IRA withdrawal is handled when determining the AGI limit criterion for conversion to the ROTH. Since you seem to be knowledgeable about this, can you tell me if the amount to be converted from my IRA is included in the AGI Limit calculation? For example, if the max AGI is as stated $100,000, and I presently have an AGI of $95,000 in other income, if I wish to convert my $10,000 IRA to a ROTH, do I add the $10,000 to my other income AGI of $95,000 bringing my total AGI to $105,000. If so then I can not convert it to a ROTH because I've exceeded the max AGI Limit of $100,000. But if I don't have to include that amount of the IRA that I want to convert to a ROTH in the AGI calculation then I would be able to make the conversion. And thet's specifically what I haven't been able to understand from reading the Pub 590. What's the answer? Which is the correct interpretation?

It is explained very clearly on page 60 of Publication 590. There are certain things that you deduct from your AGI to determine Modified AGI, and there are certain things that you add back to your AGI to determine Modified AGI.

Since I don't know what things are included or not included in your AGI, you need to look at the two lists on page 60.

If you are still confused at that point, then you need to see a local tax pro, who can run through the numbers with you.