“ I have $14000 in my IRA and wonder if I should convert a portion to a Roth IRA. I still want to receive the deduction that my traditional IRA gives me.”----> In order to convert a traditional IRA to a Roth IRA, you must pay taxes on the traditional IRA. Basically, you will owe income taxes on the amount of money in the traditional IRA minus the amount of non-deductible contributions you made to the IRA account. This amount is taxed as ordinary income; there is no difference between capital gains, dividends, or interest in the account.
“ If I contribute $5000 to my traditional IRA and convert $5000 to a Roth out of my existing traditional IRA funds will my non refundable savers credit cover the tax owed for the Roth conversion? How will this impact my state taxes?”----> I guess so.If you have deductible and nondeductible contribution amounts in any of your Traditional IRA, you will have to calculate the taxable portion of your conversion. The Saver's Credit may allow you to reduce your income tax dollar-for-dollar by up to $1,000 /$2,000 for MFJ.However, you can not claim the credit on rollover distribution(a distribution from an IRA that is eligible to be rolled over to another eligible retirement plan). Distributions from the individual's retirement plans during what is called the "testing period", may reduce the allowable saver's credit amount or result in the individual being ineligible for the credit. The testing period is the two years preceding the year for which the credit is claimed, or January 1 to April 15 of the year following the year for which the credit is claimed. For instance, if the saver's credit is claimed for 2011, distributions that occur during tax years 2010 and 2009, and from January 1, 2010, to April 15, 2011, could affect the individual's eligibility to claim the credit.
“ I do not pay any because of a non resident status in my home state.”---->. What do you mean??? Yu can never be a nonresident in your home state. As a military person, if you are stationed outside your home state, then you are treated as a nonresident of the state. You do not pay tax on your military to the state(outside your home state), but you still need to file your return on your military pay to your home state.
Last edited by Wnhough : 02-14-2012 at 06:13 AM.
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