IRA conversion and tax implications

10 replies
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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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VolvoGirlAnswer

Level 15

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.

Bsch4477

Level 15

It’s added to your gross income.

cspyonAuthor

Level 5

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?

VolvoGirlAnswer

Level 15

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

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.