Roth conversion

[John-Kristin]

I am disabled age 50. Most of my income is SSDI. Want to use TTax 2023 to estimate taxes due for a 2024 conversion of part or all of my standard IRA to a Roth. Confused by what to enter on a mock 1099R: Distribution code? Section B questions?

Of course (as many newspaper articles are suggesting these days), my goal is to pay the taxes now when my income is low and not a few years later when tax rates will likely be higher.

[Bsch4477]

Try this. 

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

[dmertz · Accepted solution]

Generally, use distribution code 2 with the IRA/SEP/SIMPLE box marked.  Because a Roth conversion is not subject to an early-distribution penalty, there is no need to use code 3 if the entire distribution is converted to Roth.  Boxes 1 and 2a must show the amount distributed from the traditional IRA.  Be sure to answer all of the questions that follow.  Pay the taxes with funds from another source to maximize the amount the ends up in the Roth IRA.  Otherwise, if you have taxes withheld from the traditional IRA distribution and do not complete the conversion of the entire distribution by substituting other funds to indirectly convert to Roth the portion withheld for taxes, you'll need to use code 3 to avoid the early-distribution penalty on the portion withheld for taxes.

[John-Kristin]

To: BSCH4477

Thanks for ref to estimator.

[John-Kristin]

To: dmertz

Much thanks. Exactly the details I needed. They seem to work.

[DatBio]

Just additional thought.  Roth conversion may not be needed for everyone.  It is needed only if your future IRA value beomces too big that your IRA distribution will bring you to higher tax.  If your future projection of IRA distribution is not high, then there is no need for roth conversion.  Seek additional financial advise or check out some online videos for more.

[dmertz]

"It is needed only if your future IRA value beomces too big that your IRA distribution will bring you to higher tax."

That's not the only consideration.  There are other reasons that it might be beneficial to convert to Roth even if when distributed later it would be taxed at the same or a lower rate such as avoiding RMDs.

[John-Kristin]

An informative dialog so far. A new wrinkle: The adviser who comes gratis with our 403b told us that we could not take our minimum required distribution as a Roth conversion. Hence, if x is our MRD, then a Roth conversion y results in taxes of both x and y. It is very difficult to find this sort of discussion on "google" - dozens of ads and teasers from financial advisers.

So 2 questions for our assembled experts: is the above advice (MRDs and Roth conversions must be separate and both taxable) on 403b accurate? Same rule for distributions from IRAs? Thanks -

[Bsch4477]

When you report a 1099-R distribution you will notice that TurboTax asks how much of the distribution is a RMD. That is because any portion of the distribution that is a RMD cannot be rolled over into another retirement account. 

[VolvoGirl]

If you are 50 you have a very long time to start taking the RMD Required Minimum Distribution.  I think not until you are 73.  Or did you inherit this IRA?  @dmertz 

[dmertz]

When I mentioned that converting to Roth can avoid RMDs, I'm referring to future RMDs to which funds in the traditional IRA (ant the traditional 403(b) account) would be subject once you reach age 75.  (The RMD age will go up to 75 before you must begin RMDs).  You mentioned a "standard" IRA, so I assume that the IRA is not an inherited IRA.

There are no restrictions for you on Roth conversions prior to the year you reach age 75.  In the year you reach age 75 and beyond, RMDs must be satisfied before converting other funds to Roth.