If a Trad IRA contrib gives me a Ret Savings Credit and I convert that Trad to Roth the next year, do I have to repay the credit or just pay tax on the conversion?

[msmelinsd]

If I make a $5100 Traditional IRA contribution for 2018, I'll get a $200 Retirement Savings Contribution Credit.  I'll contribute the other $1400 to my Roth IRA for 2018.  If I convert Traditional IRA funds to Roth in 2019, would I have to repay the $200 credit or just pay the income tax on the funds being converted in 2019?

As long as my tax bracket stays the same between years (which I expect), it seems like I'd be $200 ahead by doing this.  Are there rules or problems with this plan that I may not be aware of?

In case it makes a difference in the answer, I'm on SS but have other taxable income too. The Traditional IRA contrib first reduces my taxable SS and then also directly reduces my AGI, so the $5100 contrib reduces my taxable income by just over $10K.

[dmertz · Accepted solution]

A Roth conversion is disregarded with regard to the Retirement Savings Contributions credit.  You'll just pay income tax on the conversion, no repayment of the credit.

If less than 85% of your 2019 Social Security income will otherwise be taxable, the extra income from the Roth conversion will likely cause more of your Social Security income to become taxable, having a multiplying effect on your tax rate opposite of what has occurred on your 2018 tax return, so be careful about making any assumptions about your marginal tax rate.  But yes, there are situations where shifting taxable income to the following year can produce a net savings.

You need to prepare a simulated 2019 tax return to be sure.  You can use the What-If Worksheet in forms mode of the CD/download version of TurboTax to do this.

[msmelinsd]

Thank you very much dmertz for your very helpful answer and your caution re 2019 marginal tax rate.   My goal (if I can make it happen) is to get solar this year and make Roth conversions to utilize the solar tax credit.   I will see how plans go before I convert much.

Is 85% the maximum amount of SS that the Federal govt will currently ever tax?  Is that why you mention that percentage?

I was unaware of the What-If Worksheet, have found it, and am going through the Help pages to figure out how to use it.  I suspect it could have saved me a lot of time yesterday in determining optimum Trad IRA vs. Roth contribution .

Thank you again!

[dmertz]

85% of Social Security income is the maximum that is taxed under the current tax code.

[msmelinsd]

This is a very belated thank you for your answer.  Thank you.

[Critter]

This is my mini version of the downloaded program's  tutorial that should be in the downloaded program: 

 

What is Forms Mode?

Forms Mode lets you view and make changes to your tax forms "behind the scenes."

If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.

Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.

Related Information:

• Why would I use Forms Mode?
• How do I switch to Forms Mode in the TurboTax for Windows software?
• How do I switch to Forms Mode in the TurboTax for Mac software?

If you want to play around with different figures and tax scenarios without affecting your original return you can ….

• >>>In the TurboTax CD/Download software by creating a test copy: 
•  Open your return in TurboTax. 
•  From the File menu, choose Save As. 
•  Give the copy a new name to distinguish it from the original (for example, by adding "Test" or "Example" to the file name). 
• Click  Save. You are now safely working in the test copy and anything you do here will not affect the original. 
• https://ttlc.intuit.com/questions/1900642-how-to-make-a-test-copy-of-your-return

• >> use the WHAT IF tool: 
• - Click Forms Icon (upper right of screen) or Ctrl 2 (forms view) 
• - Click on the Open Form Icon 
• - In the “Type a form name.” area type What-If (with the dash), click on the name of the worksheet - click on Open Form 
• - You will see the worksheet on the right side of the screen; enter the information right into the form 
• - To get back to interview mode - click on the Step-by-Step Icon (upper right of screen) or Ctrl 1

It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:

1. From the File menu in the upper-left corner of TurboTax, choose Save As (Windows) or Save (Mac).
2. Browse to where you want to save your backup.
   • Tip:If you're saving to a portable device, save it to your computer first to prevent data corruption. Then, after completing Step 4, copy or move the backup file to your device.
3. In the File name field, enter a name that will distinguish it from the original tax file (for example, add "Backup" or "Copy" to the file name)
4. Click Save and then close TurboTax.
5. Restart TurboTax and open the backup copy to make sure it's not corrupted. If you get an error, delete the backup and repeat these steps.

If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.

Related Information:                             

• Retrieve a Tax File from a Portable Device
• What's the difference between the tax data file and the PDF file?
• How do I save my return as a PDF in the TurboTax software for Windows?
• How do I save my return as a PDF in the TurboTax software for Mac?
• How can I protect the tax files on my computer?

GEN85508

Answered by TurboTax FAQ to this question

AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :

• How do I save my return as a PDF in the TurboTax software for Windows?
• How do I save my return as a PDF in the TurboTax software for Mac?

AND protect the files :

• How can I protect the tax files on my computer?