I’m 47, left my job and want to convert my $130,000 traditional IRA to a Roth. What’s the best tax strategy? 

by | Jan 30, 2024 | Stock Market

Dear MarketWatch,  I’m 47, and my traditional IRA is worth roughly $130,000. About $100,000 of that IRA is after-tax contributions and filed and recorded on that basis on the 8606 tax form each year. If I convert that account to my Roth IRA, do I only pay tax on the $30,000? 

How does that get handled? Assuming I don’t withdraw from the Roth account before I’m 59 1/2 years old, are the entire withdrawals — contributions and earnings — tax-free? I recently left my job, and want to convert my significant traditional 401(k) into my traditional IRA, but at that point, the after-tax basis of the account will only be about 10% and therefore I believe I would be subject to a lot more taxes on any conversion. Can I do both of these transactions in a single tax year and receive the benefit? For example, first convert the current traditional IRA account to a Roth, and then roll over my traditional 401(k) to the traditional IRA and have conversion still only taxed at the $30,000? Or does this have to happen in a second tax year? Related: We’re in our 70s, have $1.3 million in IRAs and $1.15 million in cash. But we have ‘no …

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[mwai_chat context=”Let’s have a discussion about this article:nnDear MarketWatch,  I’m 47, and my traditional IRA is worth roughly $130,000. About $100,000 of that IRA is after-tax contributions and filed and recorded on that basis on the 8606 tax form each year. If I convert that account to my Roth IRA, do I only pay tax on the $30,000? 

How does that get handled? Assuming I don’t withdraw from the Roth account before I’m 59 1/2 years old, are the entire withdrawals — contributions and earnings — tax-free? I recently left my job, and want to convert my significant traditional 401(k) into my traditional IRA, but at that point, the after-tax basis of the account will only be about 10% and therefore I believe I would be subject to a lot more taxes on any conversion. Can I do both of these transactions in a single tax year and receive the benefit? For example, first convert the current traditional IRA account to a Roth, and then roll over my traditional 401(k) to the traditional IRA and have conversion still only taxed at the $30,000? Or does this have to happen in a second tax year? Related: We’re in our 70s, have $1.3 million in IRAs and $1.15 million in cash. But we have ‘no …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]

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