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IRA conversion and tax implications

Hi

I would like to convert my SEP-IRA balance and one tax-deferred annuity plan to my ROTH IRA.

Combined, the balance of the two accounts is $40,000. 

So, this is my question:

If I convert this amount to my Roth IRA, does it count as my income and add up to my gross income or total income? 

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2 Best answer

Accepted Solutions
DanaB27
Expert Alumni

IRA conversion and tax implications

Yes, it will be added to your taxable income since you had only pre-tax funds in the account.

If you move funds from a pre-tax/tax-deferred account to a Roth IRA then this is a conversion and not a rollover. And a conversion is taxable unless you had after-tax funds in the account.

 

@cspyon 

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View solution in original post

IRA conversion and tax implications

No. You already paid the tax when you did the conversion. 

View solution in original post

10 Replies

IRA conversion and tax implications

It’s added to your gross income. 

IRA conversion and tax implications

Really?  Even conversion between accounts, not withdraw, is counted as my gross income? So, I will have to add $40,000 to my gross income when I file the tax returns next year?

IRA conversion and tax implications

Yes.  If you convert to a ROTH it is all taxable now.  You need to roll it over to a Traditional IRA to keep it pre-tax.  

dmertz
Level 15

IRA conversion and tax implications

That's the point of a Roth conversion.  Include the taxable converted amount in income now instead of later and enjoy subsequent gains attributable to the converted amount being tax free once the requirements for qualified Roth IRA distributions are met.

IRA conversion and tax implications

So, is this the so-called backdoor Roth IRA? 

IRA conversion and tax implications

Okay, let me ask one more.

I have a former company retirement account called TAX-DEFERRED ANNUITY PLAN. It's around $2,6000.

If I roll over (NOT convert) this whole amount to my Roth IRA, does it also count as my income and add up to my gross income when I file the tax returns next year?

 

IRA conversion and tax implications

A backdoor Roth contribution or backdoor Roth IRA, as you call it should be tax-free.

It is a two-step process.

It onty works tax-free if your Traditional IRA starts out at zero, or the latest basis is at least the current value.

DanaB27
Expert Alumni

IRA conversion and tax implications

Yes, it will be added to your taxable income since you had only pre-tax funds in the account.

If you move funds from a pre-tax/tax-deferred account to a Roth IRA then this is a conversion and not a rollover. And a conversion is taxable unless you had after-tax funds in the account.

 

@cspyon 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

IRA conversion and tax implications

Okay, one last question:

 

If I withdraw the money from my ROTH IRA, does it add up to my gross income, too? 

I

IRA conversion and tax implications

No. You already paid the tax when you did the conversion. 

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