jbradshaw777[at]yahoo.com (John) wrote:

- quote -

Let's get things in the right order first. You cannot
convert a 401K directly into a Roth IRA. You need to
transfer the funds into a traditional IRA first, then
convert some or all of the traditional IRA to a Roth IRA.
The latter step produces taxable income.

You capital loss of $10,000 is first used to reduce any
capital gains you have. You didn't mention any, so you are
limited to using only $3,000 against ordinary income. The
remaining $7,000 of loss will have to be carried over to the
next and future years.

Your mortgage interest is claimed on Schedule A, with other
itemized deductions (likely also property tax paid, maybe
charitable donations). The sum of your itemized deductions
and personal exemption ($3,050 on 2003) is the amount that
can reduce your taxable income to -0-. Based on the figures
given, that is $13,050. You could convert $16,050 of the
traditional IRA to avoid taxes. If you convert more, the
next $7,000 is only taxed at 10%.

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John <jbradshaw777[at]yahoo.com> wrote:

- quote -

John

You are talking taxes here, not arithmetic.

Arithmetic doesn't work here.

If you have net capital losses of 10,000, only 3000 of those
net losses can be used to cancel other income such as 401k
distributions.

And mortgage interest payments can, indeed, be used to
itemize deductions, but you would have had a standard
deduction of 4750 without any itemized deductions, if
Single.

So 20,000 of 401k distribution income for Roth conversion,
minus 3000 of usable capital loss, is 17000. Deduct 3050 as
your personal exemption and mortgage interest of 10,000 and
you have 3950 of taxable income. If you have 3950 of other
itemized deductions such as state or local income taxes,
charitible gifts or property taxes, then you would reduce
taxable income to zero. you used.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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bradshaw777[at]yahoo.com (John) wrote:

- quote -

You can only use $3000 of the capital losses, assuming you
have no other capital gains. After doing the math, you will
discover that you still have some taxable income (assumes no
other itemized deductions). The taxable amount would only
be taxed at 10%.

Alan
http://taxtopics.net

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jbradshaw777[at]yahoo.com (John) writes:

- quote -

Not quite. If you have a net capital loss of $10,000, only
$3,000 of it can be used to offset other income. The
balance is carried forward.

The following deductions are available to you, assuming that
you are not someone's dependent:

mortgage interest: $10,000 personal exemption: $3,050
capital loss: $3,000

Thus, you could convert $16,050 of your 401(k) to Roth IRA
with zero tax liability. IMO this is a good thing to do.
Depending on your resources and future prospects, you might
even want to convert more, since you'd be paying only 10% on
the first $7,000 of taxable income (assuming Single filing
status).

Note that you cannot do a direct conversion from 401(k) to
Roth. You must roll the 401(k) into a traditional IRA and
do the conversion from there. (The IRA custodian can guide
you through the process.) IRS Publications 575 and 590 have
additional information.

Phil Marti
Topeka, KS

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- quote -

The concept is right, the numbers are wrong. Your capital
loss is limited to $3000 per year. But then there's your
property taxes, personal exemptions, etc.

And we all know that you really have to convert the 401(k)
to a regular IRA and then to a Roth - but that's a detail
the broker will handle.)

--
Don EA in Upstate NY

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Hi tax experts,

I will have no regular income this year and am considering
converting my 401K to Roth IRA. Is this a good idea? Let's
say I have capital(stocks) loss of $10,000, and mortgage
interest payment of $10,000. I could convert $20,000 worth
of 401K to Roth IRA without having to pay tax on them,
correct? TIA for any pointer!

John

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