Roth IRA Conversion - Need help

[IrvingUser]

Hello 

My daughter (20 years, full-time student) has a Traditional IRA account with a balance of 20k now. This year she only has an income of $1500. So can she convert T-IRA balance of $10,000 to Roth IRA without paying any taxes?

I am asking this question as she will have a standard deduction of $12,950 as a single filer for 2022. 
$1500 (income) + $10,000 (conversion) = $11,500   which would be still lower than the individual standard deduction for 2022. 

Please let me know if the IRA conversion amount from 1099-R/5498 is not considered as a standard income for counting towards a standard deduction.
Thanks

[Opus 17]

Yes, a $10,000 conversion would be tax free if her total income is less than the standard deduction.

[Edited to add: I forgot about the Kiddie tax.  See more below.]

A thought: Why does she have that much money in a traditional pre-tax IRA at age 20?  You can only contribute compensation from working, and the contribution limit is $6000 per year, so she must have been contributing since age 17 at least.  Why was she contributing to a tax-deductible IRA at all, why not contribute to a Roth IRA in the first place?  I would not expect her income as a 17 year old to be so high that she would benefit much from a tax-deductible IRA contribution.    Assuming she did, for whatever reason, she can do a tax-free conversion if her total income is less than the standard deduction.  

Also note, if this is an inherited IRA, the rules may be very different.

[dmertz]

It seems as though she can be claimed as your dependent.  If so, her standard deduction is limited to earned income plus $400.  Assuming that the $1,500 of income is earned income and less than half of her support, any amount of the Roth conversion over $400 will be taxable.  Furthermore, any amount of the Roth conversion over $2,300 will be subject to kiddie tax at your tax rate.

(As Opus 17 indicated, it's unusual for a 20-year-old to have a traditional IRA balance of $20,000 unless, perhaps, it's the result of a rollover of a 401(k) where she made substantial elective deferrals.  If it came from regular IRA contributions over at least 4 years, it seems that she would have made Roth IRA contributions rather than traditional IRA contributions.)

[NCperson]

@dmertz - maybe it's a inherited IRA????

[dmertz]

Roth conversions from a traditional IRA inherited by a non-spouse beneficiary are not permitted.

[Opus 17 · Accepted solution]

@dmertz  Thank you, I forgot about the Kiddie tax.

@IrvingUser  Unearned income by your child is taxed at a higher rate.  Even if you don't claim your child as a dependent, they are subject to the kiddie tax until they turn 24 (in most situations).   It probably doesn't make financial sense for your child to think about a Roth conversion until they turn 24. However, their ongoing contributions should be made to a Roth IRA, not a traditional IRA..

https://www.irs.gov/taxtopics/tc553

Because of the kiddie tax, and for anyone else reading this in the future, it is highly recommended that if a child is working and wants to contribute to a retirement account (since their living expenses are covered by their parents), they should contribute to a Roth IRA.  They will pay regular income tax on their wages, which will already be zero or less than 10% for most kids with part-time jobs.   If the child contributes to a tax-deductible traditional IRA, the tax savings will be minimal and the later tax consequences of doing a Roth conversion or withdrawal will be much more burdensome than the tax deduction.

As noted, if this IRA was inherited, it can't be converted.