2 Quick Questions About Roth IRA Conversion (1 Viewer)

[SIDA!]

Hey Guys

Looking to get a couple of answers to some pretty straightforward questions about converting a traditional IRA to a Roth IRA.

1. Assume somebody has made three annual contributions of $5,000 to their traditional IRA, invested it in the market and seen their balance drop to $12,000 from the original $15,000 contribution. If they convert, how is that $3,000 loss handled?

2. Assume somebody has made three annual contributions of $5,000 and effectively brings their traditional IRA balance to $15,000 as of December 31, 2013. For simplicity sake, no earnings were achieved by the holder of the IRA up til this point. Just sat in cash.

In 2014, they hit it big with some Amaya Gaming stock thanks to a recommendation by General Malaise, effectively doubling their account from $15,000 to $30,000. After those gains have been realized but before the end of 2014, the IRA owner decides to convert that IRA to a Roth IRA. Are they then subject to paying taxes on the entire $30,000 or just the contributions and earnings up to Dec 31, 2013?

Thanks!

 

[eoMMan]

The 3k loss doesn't get reported anywhere.

You would pay tax on the 30k, not the 15k, on your 2014 tax return.

 

[NutterButter]

You only pay tax on the earnings.

ETA: Are we talking about a tax deferred traditional or not? If tax deferred, you pay on everything. If not tax deferred, then just earnings.

Same with the first question. If deferred, you pay tax on the 12k. If not deferred you pay no tax b/c there's no earnings.

 

[johnnycakes]

You only pay tax on the earnings.

ETA: Are we talking about a tax deferred traditional or not? If tax deferred, you pay on everything. If not tax deferred, then just earnings.

Same with the first question. If deferred, you pay tax on the 12k. If not deferred you pay no tax b/c there's no earnings.

Please read more carefully... I interpret this as 3 x $5,000 were contributed to a regular IRA and now he's converting to a Roth. In that case, the whole $30k is taxed.

 

[NutterButter]

You only pay tax on the earnings.

ETA: Are we talking about a tax deferred traditional or not? If tax deferred, you pay on everything. If not tax deferred, then just earnings.

Same with the first question. If deferred, you pay tax on the 12k. If not deferred you pay no tax b/c there's no earnings.

Please read more carefully... I interpret this as 3 x $5,000 were contributed to a regular IRA and now he's converting to a Roth. In that case, the whole $30k is taxed.

A regular ira can be either tax deferred or non-tax deferred (contributions are made with post tax dollars). You can't contribute to both a 401k and a tax deferred ira. If you max out your 401k, you contribute to a non-tax deferred ira and then do the conversion using the backdoor and thus only pay tax on earnings b/c you already paid tax on contributions.

 

[eoMMan]

You only pay tax on the earnings.

ETA: Are we talking about a tax deferred traditional or not? If tax deferred, you pay on everything. If not tax deferred, then just earnings.

Same with the first question. If deferred, you pay tax on the 12k. If not deferred you pay no tax b/c there's no earnings.

Please read more carefully... I interpret this as 3 x $5,000 were contributed to a regular IRA and now he's converting to a Roth. In that case, the whole $30k is taxed.

A regular ira can be either tax deferred or non-tax deferred (contributions are made with post tax dollars). You can't contribute to both a 401k and a tax deferred ira. If you max out your 401k, you contribute to a non-tax deferred ira and then do the conversion using the backdoor and thus only pay tax on earnings b/c you already paid tax on contributions.

Oh boy...

 

[johnnycakes]

You only pay tax on the earnings.

ETA: Are we talking about a tax deferred traditional or not? If tax deferred, you pay on everything. If not tax deferred, then just earnings.

Same with the first question. If deferred, you pay tax on the 12k. If not deferred you pay no tax b/c there's no earnings.

Please read more carefully... I interpret this as 3 x $5,000 were contributed to a regular IRA and now he's converting to a Roth. In that case, the whole $30k is taxed.

A regular ira can be either tax deferred or non-tax deferred (contributions are made with post tax dollars). You can't contribute to both a 401k and a tax deferred ira. If you max out your 401k, you contribute to a non-tax deferred ira and then do the conversion using the backdoor and thus only pay tax on earnings b/c you already paid tax on contributions.

Doesn't that depend upon income level? But, granted, most FBGs will be way above any such limits.

 

[NutterButter]

You only pay tax on the earnings.

ETA: Are we talking about a tax deferred traditional or not? If tax deferred, you pay on everything. If not tax deferred, then just earnings.

Same with the first question. If deferred, you pay tax on the 12k. If not deferred you pay no tax b/c there's no earnings.

Please read more carefully... I interpret this as 3 x $5,000 were contributed to a regular IRA and now he's converting to a Roth. In that case, the whole $30k is taxed.

A regular ira can be either tax deferred or non-tax deferred (contributions are made with post tax dollars). You can't contribute to both a 401k and a tax deferred ira. If you max out your 401k, you contribute to a non-tax deferred ira and then do the conversion using the backdoor and thus only pay tax on earnings b/c you already paid tax on contributions.

Doesn't that depend upon income level? But, granted, most FBGs will be way above any such limits.

I think you're right.

 

[otello]

Back door Roth.

 

[SIDA!]

Thank you guys for taking the time to answer my questions. Really bummed about the answer on the latter question and was hoping that you could convert it retroactively based on the January 1, 2014 balance amount.