Converting traditional to a Roth

11 Replies

If you convert a rollover IRA to a Roth before April 15 which tax year is affected? Do you have a choice? Would like to be done with taxes to do tax planning and eventually move traditional into Roth on low income years.

@Jeff S.  

when you convert traditional to Roth IRA you are taxed in the year of conversion. The cut-off date here is Dec. 31, not April 15th. So if you do the conversion prior to Dec. 31st you will have to declare the conversion amount as your taxable income in the year 2014. If you do the conversion after Jan. 1st 2015 - then it will count as taxable income in the year 2015 (regardless if you do this before or after April 15th).

Disclosure: I'm not a CPA and this is not a tax advise. 

Dmitriy Fomichenko, Broker
(949) 228-9393

Ok thank you @Dmitriy Fomichenko. Working on some tax planning and have rollover funds plus traditional IRA's that may be  good candidates for a Roth.

Your other option is to keep both the traditional and Roth.  Stop putting money into the traditional and max the Roth.  When you are retired you can decide where to take money from first depending on taxes at that time.  

Thanks @Bryan N.  I am retired and with no earned income this year can't contribute. The lower income this year is a possible opportunity to convert some trditional IRA.

Hey @Bryan N.  can you elaborate a little about "cash is king". Wishing there was a little more income from cash.

@Jeff S.  

It's just a reminder to always have liquidity and not over leverage.  I used to have a lot of bad debt when I was younger.  About five years ago I had enough.  Today, I will only carry mortgages and only carry an amount that I can pay without affecting my lifestyle if the properties are vacant.  Once I hit $10K a month in rents I'll kill whatever mortgages are left.  If I can't pay cash for something I won't buy it (even vehicles).  Cash brings a certain level of comfort and security that I enjoy even if it's not making anything.  Any "cash" I have invested in the markets or real estate I do not consider cash.  

Back in the good old days you could park cash in a money market and get an ok rate on it.  Some credit unions have CD's/Share Certificates that pay 3%, but beyond that your options are limited.  Online savings accounts pay more then brick and mortar banks.  Having cash/liquidity with no risk of loss brings security for us.  We sleep better at night. 

@Bryan N.  When  everything goes up you look like an idiot with cash but when everything crashes you are a genius.

Keep in mind - you have until tax filing time (including the extension to 10/15) to recharacterize any or all of the conversion. So, in my opinion, it's better to convert too much, then, while doing your taxes, decide how much to back out to get your taxable income exactly where you want it. 

@Frank M.  so you are saying convert now and then you can change it after the first if needed.

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