Roth Conversion Question

[maat55]

I have an Traditional IRA I want to convert to an Roth. I am already fully funding a Roth for this year.

Am I allowed to convert the Traditional to a Roth even though my Roth is fully funded for this year and is there a limit as to how much you can convert?

[Broken Arrow]

You can, but you'll most likely want to call your investment company to do this, and when you do, you can double check to be sure.

You can convert as much as you want, so long as you have the money to make the conversion. Conversions are taxed as earned income. Watch out!

The money to pay for the tax can come from either the IRA itself or from a separate cash fund. I highly recommend the latter, to the point where if you don't have enough, I wouldn't convert just yet or partially convert only the amount you can afford to do so.

Anyway, the best thing is to call up your investment company and they should be able to walk you through it.

[maat55]

You can, but you'll most likely want to call your investment company to do this, and when you do, you can double check to be sure.

You can convert as much as you want, so long as you have the money to make the conversion. Conversions are taxed as earned income. Watch out!

The money to pay for the tax can come from either the IRA itself or from a separate cash fund. I highly recommend the latter, to the point where if you don't have enough, I wouldn't convert just yet or partially convert only the amount you can afford to do so.

Anyway, the best thing is to call up your investment company and they should be able to walk you through it.

Thanks BA, I'll call tomorrow.

[responduser]

I have an Traditional IRA I want to convert to an Roth. I am already fully funding a Roth for this year.

Am I allowed to convert the Traditional to a Roth even though my Roth is fully funded for this year and is there a limit as to how much you can convert?

Yes you can convert and there is no such limit.

[noppenbd]

I have an Traditional IRA I want to convert to an Roth. I am already fully funding a Roth for this year.

Am I allowed to convert the Traditional to a Roth even though my Roth is fully funded for this year and is there a limit as to how much you can convert?

There isn't a limit on how much you can convert, but a good rule of thumb is not to convert so much that you are pushed into the 25% tax bracket (if you are normally in the 15% bracket). Estimate your taxable income for this year and figure out how much "room" you have to reach the end of the 15% bracket. If you are married filing jointly, you can have up $65100 in taxable income to stay in the 15% bracket. Taxable income is basically your AGI minus deductions and exemptions.

Example: Say you have $75000 total from your W2s and no other income. You have $35000 in deductions and exemptions, bringing you down to $40000 taxable. This leaves you $25100 to reach the end of the 15% bracket. So you should convert $25100 this year, a similar amount next year, etc.

Also, there is an AGI limitation on Roth conversions. You cannot convert a Roth if your AGI is over $100K (whether single or married filing jointly). This is scheduled to go away in 2010 but for now it is a roadblock for some.

[Broken Arrow]

noppenbd has said what I tried to say but was too sleepy and lazy to do so.

[maat55]

Thanks guy's, i'm going to do this while it's low enough to get a way with it.

[creditcardfree]

Yes...that is a good point for anyone thinking about converting. As the balance of your investment goes down, the less you need to convert and therefore less one may need to pay taxes on.

[LivingAlmostLarge]

You can't be making $100k or something too.

[jIM_Ohio]

100k AGI is the conversion limit
the conversion is NOT included in the MAGI for the calculation of AGI for conversion purposes.
I agree only convert up to cap of 15% tax bracket.