I recently opened a Traditional IRA (Within last 30days), and funded it with $5500. Since it is a newly opened account, I haven’t taken any deductions yet for the $5500 contribution.
I want to convert it to a Roth IRA before the year ends, if possible.
The question is: Since conversions to a Roth are taxed as income, will this amount to getting taxed twice on the money (once as working income, and then a second time as Roth income)?
By the way, this isn?t a ?back door? conversion nor is it due to high income. Just decided Roth is a better fit. I think this would technically be a straight conversion rather than a so-called recharacterization, since it is a Traditional to Roth.
The question is: Since conversions to a Roth are taxed as income, will this amount to getting taxed twice on the money (once as working income, and then a second time as Roth income)?====>It depends so I should say No UNLES you carry nondeductible IRA contributions but in genral, it is not taxed twice since
Non-deductible contributions to an IRA are reported on IRS Form 8606. This informs the IRS that certain funds in the IRA have already been taxed. This is the process used to track this information so the funds do not get taxed again when they are withdrawn. Non-deductible ;when you convert a Traditional IRA to a Roth IRA, it can be a smart move; however, it does have potential income tax implications. The amount you choose to convert to Roth will be taxed as ordinary income. This additional income, therefore, can push you into a higher marginal federal income tax bracket. The federal tax on a Roth IRA conversion will be collected by the IRS with the rest of your income taxes due on the return you file in the year of the conversion. The ordinary income generated by a Roth IRA conversion generally can be offset by losses and deductions reported on the same tax return.
By the way, this isn?t a ?back door? conversion nor is it due to high income. Just decided Roth is a better fit. I think this would technically be a straight conversion rather than a so-called recharacterization, since it is a Traditional to Roth.
Asmentioned previously; You don?t actually pay taxes on a Roth contribution, it just isn?t a deductible contribution; howeve as said before, If you convert your traditional IRA, for which you previously claimed a deduction, to a R- IRA , then you MUST pay taxes on the amount converted in the year of conversion since R-IRA as yu can see never allow tax dedcuiton on its contributions
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