IRA Rollover

Archive for June, 2008

Question: In 2008 I rolled my IRA into a Roth IRA, now the IRS is taxing me on the rollover. Do I truely owe?

An IRA to ROTH IRA conversion is a legitimate conversion, you have to fill out the appropriate forms, but I’m being penalized as if that was a distribution. Do I have grounds to protest?

Answer: The ROTH IRA conversion is meant to allow people to take advantage of the recent crash in the markets.

The way it works is that you withdraw your money from your IRA and put it immediately into a new ROTH IRA. If you fill out proper forms this transaction is PENALTY free. However it is unfortunately NOT tax free. You will need to pay the taxes on the withdrawal from your traditional IRA as ordinary income. This could affect your tax bracket this year. I apologize for this critical misunderstanding.

However once the taxes have been paid, your money is free and clear in a ROTH IRA. This means that you will never have to pay taxes on any gains or income for as long as you live since you are paying the taxes now.

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