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

Jan 05, 2012 by Rosa from San Diego, CA in  |  Flag
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7 votes

Refer to Ed Slott at www.irahelp.com - he is the foremost expert on the every changing rules surrounding IRA's and related tax laws

1 Comment   |  Flag   |  Jan 07, 2012 from Boston, MA
Mike

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Flag |  Dec 16, 2019

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6 votes

Yes, you do need to pay in the same year. When the regulation removing the cap on income for Roth IRA conversion first went into effect in 2010, there was a one-time opportunity to defer the tax, half to 2011 and half to 2012 but that is no longer in effect.

Comment   |  Flag   |  May 02, 2012 from Manhattan, NY

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4 votes

As the other answers point out, you are required to pay the taxes on the conversion for the tax year the conversion was completed. This is a real good reason to meet with an advisor and review your current tax situation - because you don't have to convert ALL IRA money in one tax year but can spread the conversions over several years and pay less tax by knowing where your taxable income is realtive to the tax brackets in any given year. For example, if your taxable income is $10,000 lower than the top of the 25% bracket and your IRA balance is $20,000, you can convert (up to) half of the IRA this year at a tax cost of 25% of hte converted amount instead of converting the entire balance and getting bumped into the next bracket and paying 28% on half of the converted amount. You can decide each year how much tax you are willing to pay to do the conversion. Being aware of the conversion rules and where your taxable income is relative to the tax brackets is key. Good luck!

Comment   |  Flag   |  May 02, 2012 from Redmond, WA

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Andy Tilp, CFP® Level 16

Hi Rosa,

A couple points about the taxes when converting your regular IRA to a Roth IRA.

If you have a mix of pre-tax contributions and after-tax contributions, then you will not owe tax on the portion from the after-tax contribution. Since you have already paid tax on the money , there is no need to pay it again.

If this is the case, you will need to pro-rate the amount of tax. For example, say you have $100,000 in the IRA and $90,000, or 90%, is from either pre-tax contributions and/or growth in the investments. Of course, the remaining $10,000 is from after tax contributions.

Then say you convert $10,000 to a Roth. You will owe tax on 90% of the amount converted. That is, you owe tax on $9000, not the full $10,000.

In addition, all your regular IRAs are considered in the total pro-rata calculation. So if you have a SEP, SIMPLE and/or a Rollover IRA, these all must be included in the final calculation.

Confusing? It is the tax code after all…. It is probably a good idea to work with your tax professional to make sure this is done properly.

Hope this helps. Andy

Comment   |  Flag   |  Oct 30, 2013 from Sherwood, OR

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