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You will pay a lot of taxes if you convert a traditional IRA to a Roth IRA. The amount you choose to convert will be taxed as ordinary income. This additional income can push you into a higher marginal federal income tax bracket.
You may use the following TurboTax products to report the conversion:
Note: The higher the version, the more step-by-step guidance you'll receive.
See How do I enter a backdoor Roth IRA conversion?
It's common for individuals to manage the tax consequences of the conversion by converting only enough in any one year to bring their income that is taxable as ordinary income up to the point where they reach the top of their current tax bracket. However, this is often a too-simple way of determining how much to convert in any one year because of the side effects that and occur with increasing AGI, causing your marginal tax rate on a given increase in income to be greater than your tax bracket rate in some cases. You really need to experiment by making test tax returns and manually calculating your marginal tax rate for various sizes of Roth conversions. Marginal tax rate is the increase in tax divided by the increase in income.
For example, enter a proposed amount of Roth conversion in various steps of $1,000 and divide the resulting tax increase by the step size to determine the marginal tax rate for that step. You'll want to purchase and use the CD/download version of TurboTax to do this. Although is possible to create a separate online account to use the online version for this experimentation (you don't want to use the same account as you use to file your tax return), it would be rather awkward to use the online version of TurboTax for this kind of experimentation.
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