20 THE QUEENS COURIER • JULY 6, 2017 FOR BREAKING NEWS VISIT WWW.QNS.COM
Converting a Traditional IRA to a Roth
BY JOHN SAVIGNANO, CPA
Want to convert a traditional IRA to a
Roth? Be sure you take tax reform into
account.
President Trump and the GOPcontrolled
Congress want to lower tax
rates and scrap many deductions as part
of their desire to overhaul the tax system.
If they’re not able to pass comprehensive
reform, than odds are they’ll settle for
temporary tax cuts without all the trappings
of a broad overhaul bill.
Present and future tax rates are key
in figuring whether a Roth conversion
makes sense. If you expect the tax rate
you’ll pay in retirement will be the same
as or higher than the rate on the conversion,
then switching to a Roth can pay off
taxwise, as long as you don’t have to tap
IRA funds to pay the tax bill on the conversion.
If your tax rate in retirement will
be lower, tax-free Roth payouts are less
advantageous. You’ll pay more tax on the
conversion than you’d save later on.
Most would be wise to delay Roth conversions
until tax changes are enacted,
which may very well not happen until
sometime next year. You don’t want to
convert at this year’s 39.6% maximum
rate only to see the top rate fall in 2018
to around 35%. But if you want to gamble,
you can convert now and undo the
switch later…provided you act timely.
You have until October 15 of the year
following the conversion to transfer the
funds back to a traditional IRA. This is
called a recharacterization.
Let’s turn to other factors to consider
when pondering a Roth conversion. You
don’t need to convert the entire amount
to a Roth in one swoop. You can transfer
the money in increments over time and
space out the tax hit.
Converting can pay if you have IRA
assets that you expect will soar in value.
Switching to a Roth before the assets
appreciate will result in a lower conversion
tax. The same rationale applies if you have
IRA assets that now are depressed in value.
There’s no required distribution from
Roths when you reach 70 ½. Keep in mind,
though, that if you are 70 ½ or older at the
time of conversion, you’ll have to take an
RMD for the year of the switch because
the required payout is based on your traditional
IRA balance at the end of the immediately
preceding year.
Think about using separate Roths for
different asset classes, such as stocks,
bonds and real estate. Doing so gives
you maximum flexibility, especially on
an unwind.
The additional income from converting
can trigger higher Medicare premiums.
Individuals owe a monthly surcharge
on top of their regular parts B and
D premiums if their modified adjusted
gross income exceeds $85,000…$170,000
for joint filers. Income from converting
to a Roth is included when calculating
modified AGI. Doing a Roth switch this
year, for example, could lead to higher
premiums in 2019.
Converting can also subject more of
your Social Security benefits to tax. The
extra conversion income can lead to
other income-based phaseouts, too, such
as write-offs for personal exemptions,
itemized deductions and passive losses.
This may be irrelevant if tax reform ends
up putting the kibosh on these breaks.
Doing partial conversions over several
years can mitigate these effects.
John Savignano is a partner with
Savignano Accountants & Advisors
located at 47-46 Vernon Blvd., Second
Floor, in Long Island City. If you have
any questions or require additional
information, please call John at 718-
707-0955.
TAX TIPS
WHITE SNEAKERS
Q: Wearing his white sneakers, and feeling very good, my husband left
a methadone clinic, entered a subway station, fell off a subway platform and
was struck by a train. From the time we entered, to the time he was found
motionless on the tracks, two trains had passed through. But I did not actually
see him fall.
A: Your attorney will need a lot more information. On what track was
he discovered? Did both trains use that track? It is virtually certain that the
second train must have hit your husband. With regard to the first train, you
will want to determine whether it had already passed through. Bear in mind
that mere hitting is not enough: you must prove that the hitting was done with
negligence.
Suppose that a transit-authority ‘incident report’ indicates that the
second operator saw some white sneakers. Was this as he was entering the
station? If so, your attorney will try to prove that the operator had sufficient
time to engage his emergency brake. In rebuttal, the defendant may argue that
the train’s headlights would not have illuminated the sneakers so early.
On the other hand, suppose that what appear to be bloodstains were
discovered on cars of the first train, while none were discovered on the second.
If the operator of the first train had no time to see your husband, then this is
bad news. However, perhaps the apparent bloodstains were merely grape juice
or rat blood.
Your attorney will hope to convince the jury that the Transit Authority
was negligent and that its negligence was a proximate cause of the injuries.