Convert Traditional to Roth IRA

5 Replies

I'm thinking of converting some/all of my Traditional IRA to my Roth. I know there will be taxes to pay. If I move to a no tax state like TX or FL it would seem I don't have to pay state tax on the transfer, is that correct?

David,

Yes, if you become a resident of another state prior to a Roth conversion, you will be subject to that state's tax/no-tax as the case may be.  Federal taxes will be the same either way.  

The concept of a Roth IRA conversion is definitely something to discuss with your licensed tax advisor or CFP. There area lot of complexities to evaluate and manage.

@David C. also, be aware the conversion is not a separate tax event from your income taxes. The amount you convert is included in your taxable income. If you convert a large amount it could push you into a higher marginal tax rate (bracket) and you could be paying taxes on some or all of the converted amount at a higher tax rate.

All of that assumes the entire amount you convert is taxable. If you made non-exempt contributions to your IRA in the past, those can be converted tax free. Another excellent reason to consult a pro!

Good Luck!

@David C.

In addition to @Paul Allen and @Brian Eastman words of wisdom -I would wait and see what the new tax bill looks like before I converted. I would also read the book "Keep It" by Joe Luby as it saved me tens of thousands of dollars. Conversions should be well thought out and planned dependent on the extent of the potential tax consequences. 

Some states already tax your Ira contributions because many residents retire to Fl and then the states would miss out on any tax. Check with your state and a knowledgeable Accountant. 

@Paul Allen What are '...non-exempt contributions...'?

@Carl Fischer Do you know if CA taxes IRA or 401k contributions? The couple short articles I read seemed to indicate it doesn't.

Looking back at my original question I guess I was more trying to get at if CA has some kind of claw-back (if that's the right term) rights where under certain conditions they can demand taxes if for example you move back too soon, or if you own real estate in CA, or if you have some business interests in CA.

Originally posted by @David C. :

@Paul Allen What are '...non-exempt contributions...'?

Oops, I meant to write "non-qualified contributions". Contributions that were not exempted from your taxes. (Contributions for which you received no tax deduction.)

Join the Largest Real Estate Investing Community

Basic membership is free, forever.