IRA Conversion in a Low AGI Year

#3 02-12-2004, 07:31 AM

sophal[at]uc.edu.kh posted:

- quote -

> 1) Can a Regular IRA contribution make
> sense in a year in which ALL my Adjusted
> Gross Income (AGI) is expected to come from
> circa $37,000's worth of rollover/regular IRA
> conversions to a Roth IRA? Does a Roth IRA
> contribution make more sense, tax-wise?

Based on this information, you cannot make any IRA
contribution, since you have no earned income.

- quote -

> I plan to convert that Regular IRA in a future
> year, perhaps next year, when I would in
> theory again have low taxable income (I'm a
> grad student at the moment). However, that
> would also mean that I would take a Regular
> IRA contribution that year... and then convert it
> at some future time... which smacks of a
> chicken and egg problem that never ends.
> For 2004 the range for Regular IRA deduction
> will be for AGIs of $45,000-$55,000, which is
> well above my conversion total. That means I
> would be able to make a full deduction off of a
> Regular IRA contribution of $3,000.
> 2) Come to think of it, is conversion money
> actually considered "earned income"??? I
> need at least $3,000 worth of earned income
> to make any kind of IRA contribution in the
> first place.
> I am single and without dependents.

Yep, you got there on your own. "Come to think of if" hit
the nail on the head.

Bill

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#2 02-12-2004, 06:53 AM

sophal[at]uc.edu.kh (Sophal) writes:

- quote -

> 1) Can a Regular IRA contribution make sense in a year in
> which ALL my Adjusted Gross Income (AGI) is expected to come
> from circa $37,000's worth of rollover/regular IRA
> conversions to a Roth IRA? Does a Roth IRA contribution make
> more sense, tax-wise?

If you have no taxable compensation you can't make any kind
of IRA contribution. The conversion doesn't count.

However, if you have no income and cannot be claimed as a
dependent, in 2004 you can convert $7950 without having to
pay any Federal tax. Another $7150 would be taxed at only
10%. (You also need to consider state liability.) It's a
much different story if you can be claimed as a dependent.

Phil Marti
Topeka, KS

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#1 02-12-2004, 06:53 AM

Sophal wrote:

- quote -

> 2) Come to think of it, is conversion money actually
> considered "earned income"???

No.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

02-12-2004, 06:15 AM

sophal[at]uc.edu.kh (Sophal) wrote:

- quote -

> 2) Come to think of it, is conversion money actually
> considered "earned income"??? I need at least $3,000 worth
> of earned income to make any kind of IRA contribution in the
> first place.

No, investment income is not earned income. If you don't
have some form of wages, you can't make an IRA contribution.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#-1 02-11-2004, 11:44 AM

1) Can a Regular IRA contribution make sense in a year in
which ALL my Adjusted Gross Income (AGI) is expected to come
from circa $37,000's worth of rollover/regular IRA
conversions to a Roth IRA? Does a Roth IRA contribution make
more sense, tax-wise?

I plan to convert that Regular IRA in a future year, perhaps
next year, when I would in theory again have low taxable
income (I'm a grad student at the moment). However, that
would also mean that I would take a Regular IRA contribution
that year... and then convert it at some future time...
which smacks of a chicken and egg problem that never ends.

For 2004 the range for Regular IRA deduction will be for
AGIs of $45,000-$55,000, which is well above my conversion
total. That means I would be able to make a full deduction
off of a Regular IRA contribution of $3,000.

2) Come to think of it, is conversion money actually
considered "earned income"??? I need at least $3,000 worth
of earned income to make any kind of IRA contribution in the
first place.

I am single and without dependents.

Many thanks,

Sophal

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Similar Threads
Thread	Forum	Replies	Last Post
transactions frmo year 2005 showing in year 2006 Jack W: Using Mney 2004. 4 transactions for year 2005 are showing up in year 2006 under the category and payee list, but they are not showing up as a...	Microsoft Money	1	09-18-2006 11:04 PM
Year to year comparison in Money 2003 Iron Flatline: Hello. I can't seem to generate a report that would allow me to do a year by year comparison of income and spending. I'd like to have all my...	Microsoft Money	1	01-22-2004 01:24 AM
Mandatory minimum withdrawals: cumulative or year-by-year? AES/newspost: Let's say that the mandatory minimum withdrawals from my tax-deferred TIAA-CREF retirement savings (currently age 72) will be, in round numbers,...	Taxes	5	11-14-2003 03:01 PM
Re: Can we move / reclaim a charitable contribution in a later year from the donation year?! Seth Breidbart: David <webmaster@crmsolmag.8m.com> wrote: > We donated appoximately $10,000 in stock to a temple we > belonged to in 2001. They asked what we...	Taxes	2	07-03-2003 08:17 AM

Thread Tools
Show Printable Version Email this Page
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode