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Posted by bono9763@yahoo.com on April 12, 2007, 6:51 pm
Please log in for more thread options vlasim...@comcast.net wrote:
> Over the past 5 years, I have been contributing yearly to
> what I thought was a roth IRA account. I recently learned
> that I setup the account incorrectly, and it was all this
> time a traditional IRA account (not a roth IRA). I called
> my brokerage, and they said they can convert the account
> into a Roth IRA.
>
> My questions are two fold:
>
> 1. Do I need to file amendments to my past tax returns? I
> declared that I have been contributing to a roth IRA all
> along, but technically, I was contributing to a traditional
> IRA that was later converted to a roth IRA.
>
> 2. Should I withhold federal and/or state income taxes
> during the conversion from the traditional to roth IRA? The
> conversion form indicates "IRA regulations required the
> custodian of the IRA from wich you are converting to
> withhold income taxes at the rate of 10% from the converted
> amount unless yiou elect not to have withholding apply".
> Important to note is that I contributed after-tax income
> into the traditional IRA account.
When you convert to a Roth, the custodian will send you a
1099-R for 2007 and you will have to pay tax on the amount
converted. In order to get any benefit from the Traditional
contributions, you will have to amend your past returns. You
only have until Tuesday, April 17 to amend 2003. Years
before that are lost. If you were covered by a pension plan
at work, your deductions may be limited. In that case, you
would have to file Form 8606 to establish a basis.
It's hard to say how much tax you would owe without knowing
your total financial picture.
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