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Jacy
Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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I have two IRA 18K and 16 +$34K. there were from my former

Resolved Question:

I have two IRA 18K and 16 +$34K. there were from my former employers and I have never added onto them for the last 5 years.
I am reaching 59 ½. I am considering to cash this out of convert into ROTH IRA. I will filing head of household, residing in Nevada. And my AGI (before cashing or converting IRAs) will be about $40K for 2010, and predicting no itemized items (standard deduction).
What is your best advise regarding the IRAs. I do not need the money but I can see that down the line, my income will go up.
Submitted: 6 years ago.
Category: Tax
Expert:  Jacy replied 6 years ago.
Chat Conversation Started
Jacy :

Hello,

Customer :

hello

Customer :

correction on post: ...18k and 16k = 34k.

Jacy :

If you think your tax bracket will be higher in the future when you will be taking distributions, this makes sense. Right now you are in the 15% bracket which make the additional tax on the conversion $5100. Most advisors only recommend conversion if you can pay this tax without using the IRA money.

Customer :

what about converting into Roth IRA?

Jacy :

You also have the option of electing to report half of the conversion in 2011, and the other half in 2012. If Obama keeps his promise and doesn't raise tax rates (except for over $250,000), you may want to do this and delay having to pay the tax.

Customer :

I forgot to mention that these IRAs are in stocks. and my all my income are stock gain (capital)

Jacy :

You do not have to liquidate your investments to do the conversion. It's mainly just paperwork. Your custodian just changes the type of account and issues a 1099-R with the value at the conversion date.

Customer :

yes, i know but what is your opinion regarding cashing the IRA vs. converting to Roth IRA?

Jacy :

Well, if you cash it out, all the tax will be due by 4/15/2011.

Customer :

?????

Jacy :

If you leave it as a tradional IRA, you won't be required to take distributions until 70 1/2. Do you think your tax rate will be higher then? High enought to pay all the tax 11 years early?

Customer :

YES

Jacy :

Well, the conversion sounds right for you if you can pay the tax out of other sources. If you don't plan on needing the money, this also makes it so your heirs will inherit tax free if you die.

Customer :

ok. but still have not addressed the main question. what about converting into Roth IRA?

Jacy :

I'm not sure what you are asking. From what you have told me, converting your IRA to a Roth IRA sounds like the right move.

Jacy :

If you cash it out, the tax will be due in 2011. If you convert, you can delay paying the tax until 2012 and 2013.

Customer :

my main question is chosing between cashing the IRA vs. converting into Roth IRA? Right now, i am only managing 200K and doing fine. my thinking is, Roth IRA is better since all the gains will TAX FREE? Is this sound choice, or is there something in the law that won't allow me to do this?

Jacy :

Yes, that makes sense. If you do not need the money, and it can grow tax free, converting to Roth is the right thing to do. All income restrictions were removed for 2010, so anyone who wants to do it, can. I hope this has been helpful to you.


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Customer :

thank you.




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Customer: replied 5 years ago.
can't get this off my screen, kept asking me to "reply to the expert".

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