topic roll over from Trad. IRS to Roth IRA. taxes were paid in Retirement tax questions

roll over from Trad. IRS to Roth IRA. taxes were paid

JNM62 — Thu, 11 Mar 2021 22:45:19 GMT

My amount to IRS increased appears because it is Trad to Roth IRA, Not understanding standing basically we were just moving funds from Trad to Roth

Please Help

Re: roll over from Trad. IRS to Roth IRA. taxes were paid

RayW7 — Thu, 11 Mar 2021 23:06:21 GMT

Please be aware that a conversion from Traditional to Roth IRA will result in the taxable income unless you had non-deductible contributions in the traditional IRA.

You can convert all or part of the money in a traditional IRA into a Roth IRA. ... You will owe taxes on the money you convert, but you'll be able to take tax-free withdrawals from the Roth IRA in the future.

Two of the most popular Individual Retirement Account plans are the Traditional IRA and the Roth IRA. The main difference between the two is when you get taxed.

In a Traditional IRA, you generally don't pay taxes on your contributions and earned interest until you make withdrawals. In other words, you are getting a tax deduction now and will pay the taxes later when this investment is withdrawn, according to the distribution age requirements.
In a Roth IRA, you don't get to deduct your contributions. However, because Roth IRAs are funded with after-tax dollars (money that's already been taxed), you will pay taxes on your contributions but will not pay taxes when you withdraw them in the future, if you meet the age distribution requirements.

To sum it up, you can either pay the tax now with a Roth IRA, or pay the tax in the future with a Traditional IRA.

Re: roll over from Trad. IRS to Roth IRA. taxes were paid

VolvoGirl — Thu, 11 Mar 2021 23:10:43 GMT

Do you mean they took the taxes out when you converted it to the ROTH IRA?

You didn’t actually pay the tax or the 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You had taxes withheld like from you paycheck. You still have to enter the whole gross amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b. The withholding will show up on 1040 line 25b.

And by increasing your income you may lose some credits like the EIC. You can lose like up to 50% of it for taxes and penalties for federal and state.

And check if you have the right taxable amount showing up. Check 1040 line 4b.