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Originally posted by Like2Plan
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I second tomhole's advice to look at the Boglehead wiki on this subject. There are lots of additional links that explain the mechanics of how this is done on the tax forms. (Even if you have someone else do your taxes, it is important to know what is going on. )
The biggest fly in the ointment to making a conversion is if your already have a traditional IRA. The IRS applies the pro rata rule to the conversion which looks at all your traditional IRA as a whole--not just the current year contributions. (There is a work around to isolate the basis which could avoid an unpleasant surprise at tax time.)
The next challenge is tracking the conversions because until you are 59.5 each conversion will have a 5 year holding period.
Finally, it becomes a little complicated in the the unlikely event that you need to withdraw your contributions from a converted Roth account before 59.5.
If you have a tax professional taking care of your taxes, I would highly recommend consulting with him/her before proceeding with a conversion since he/she will know your overall situation and perhaps avoid some of the pitfalls.
The biggest fly in the ointment to making a conversion is if your already have a traditional IRA. The IRS applies the pro rata rule to the conversion which looks at all your traditional IRA as a whole--not just the current year contributions. (There is a work around to isolate the basis which could avoid an unpleasant surprise at tax time.)
The next challenge is tracking the conversions because until you are 59.5 each conversion will have a 5 year holding period.
Finally, it becomes a little complicated in the the unlikely event that you need to withdraw your contributions from a converted Roth account before 59.5.
If you have a tax professional taking care of your taxes, I would highly recommend consulting with him/her before proceeding with a conversion since he/she will know your overall situation and perhaps avoid some of the pitfalls.
Was going to stop with this IRA nonsense since I got 0 benefit from it last year from a tax perspective.
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