Roth IRA

Q. When I convert my regular IRA to a Roth IRA, do I have to pay the taxes all at once?

A. ‘Fraid so. You’re required to report the entire conversion income in the year of conversion. For conversions occurring in 1998, the income could have been spread out over several years… but that option is no longer available.

Q. If I convert my IRA to a Roth IRA, will that income increase my adjusted gross income for the current year?

A. Absolutely. The income you have to report for an IRA conversion to a Roth IRA will have an impact on any and all tax issues that are based on AGI — except for any Roth contribution and/or conversion issues. (In other words, if you meet the AGI limitation rules to convert or contribute to a Roth before taking the conversion income into consideration, this income won’t make you ineligible based on an increased AGI.) But, any tax provisions that use AGI as a guidepost will be affected — including medical expenses (7.5% AGI floor), miscellaneous deductions (2% AGI floor), taxability of Social Security (based on AGI), passive loss limitations (based on AGI), and many others.

In some cases, your AGI may be severely affected. This must be taken into consideration when you decide to make a Roth IRA conversion.