Question about converting to Roth IRA

You can do a conversion once per year.

Watch out for pro rata penalties. You might need to roll any traditional or similar ira funds that you are not converting into a 401k or equivalent to avoid a nasty surprise. And you can find good descriptions of this sort of thing on the white coat investor. If you are still confused seek help from a tax accountant.

If you screw up please make a TulaneLSU top ten ways the IRS sodomized you.

Friend,

Does that language mean that one can convert funds or equities from a traditional IRA to Roth IRA as many times in a year as one wants?

A second question: does it matter if the holdings in the IRA are cash or stocks when the conversion happens? Normally, at the beginning of the year I put cash into a traditional IRA. I then mail to my firm the paperwork to convert the cash in my traditional to a Roth. This year I put 6,000 into BB stock before the conversion happened. That 6,000 is now worth about 15,000. I have not sold any BB and it is all stock still. I plan to sell that stock this week and keep it in cash. If I convert in the next few weeks that cash (15,000) to a Roth IRA, will all the profit, when in decades I take out the money from the IRA, be tax free? To note, I am not going to claim any tax deductions from that traditional IRA this year.

Yours,
TulaneLSU

quote:

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Does that language mean that one can convert funds or equities from a traditional IRA to Roth IRA as many times in a year as one wants?

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I believe it does but I am not a financial advisor.

I have a traditional IRA & a Roth; they are both in my name. For the past 6 years we have moved (converted, rollover, all the same) funds from the Trad IRA to the Roth. Usually we (by we I mean the financial advisor) would move $ more than once/year. That’s because we didn’t want to move too much and get pushed into the 22% (was 25%) marginal tax bracket. If we stayed in the 12% bracket long term cap gains are taxed at 0%. We would not have a good guess what the ltcg would be till near year’s end. LTCG were not from an IRA.

I don’t think it matters what the $ are invested in; cash, stocks, mutual funds, etc.

I assume you’re aware that moving $ out of the traditional IRA; regardless of what you do with the $, is a taxable event. How much you owe in taxes depends on many factors and not the least of which is total income.

Once in the Roth they can be withdrawn without creating a taxable event.

I would think your financial institution could answer any questions and explain the tax ramifications; although they will probably tell you they do not give tax advice.

Edit: if you made the initial contribution to the traditional IRA w/ after tax dollars then I think you just pay taxes on the gain ($15k - $6k = $9k taxable). But I’m not a CPA either.