Converting Trad. IRA to Roth IRA & taxes

[flavor]

Hi. I have a tradiotional IRA worth about $30,000 and want to convert it to Roth IRA. Would anyone have an idea of how much taxes I'll have to pay on that conversion? We already did our 2007 income taxes, so I assume the change will affect our next year's. Would we have to hire on accountant for next year's taxes? My husband is the only one who works, I stay home with two preschoolers, so we've been doing our taxes ourselves. Thanks in advance.

[Dinadur]

If you do not take constructive receipt of the funds you will incur no tax liability from an IRA conversion.

[safari]

That $30,000 will be added to your income, so how much taxes you're going to pay will depend on your tax bracket. For example, if you're in the 25% bracket, you'll have to pay $7,500 to the IRS. Also, don't forget about your state taxes.

[sweeps]

safari is right. You definitely do incur a tax liability. Also the extra $30,000 could push you out of certain tax breaks you may be used to, such as the child tax credit. But it still could be a very good move for the long run. Read this.

[pennrj430]

Flavor, you might also think about doing this in stages. Convert 10,000 this year, 10,000 next year and so on. This way you won't get hit for as much all at once.

[jIM_Ohio]

Flavor, you might also think about doing this in stages. Convert 10,000 this year, 10,000 next year and so on. This way you won't get hit for as much all at once.

Excellent advice. In addition, I would recomend a person look at tax brackets and tax rates.

If a person is in 25% bracket, maybe they wait for a year where they are in 15% bracket to do the traditional to Roth conversion (saving big time $$).

Maybe person is in 25% bracket and can cap it out (cap is 120k+ for married filing jointly). Meaning if taxable income is 90k, there is 30k of room to cap out the current bracket (being taxed at 25%) before the 120001 dollar is taxed at 28%.

Check the tax brackets in the year you do the conversion, because the caps change each year for each bracket.

[Snave]

Can someone clear this up for me. I was about to post that I was confused and had heard that the traditional to roth could only be done in 2010. But, I just googled "traditional IRA to roth IRA conversion" and found a few articles. So, am I now correct in that if your AGI is under 100K you can convert at any time? And the 2010 rule would apply to those over 100K as the opportunity that they could do this b/c of the loophole?

[flavor]

Thank you for your responses. I'm shocked I'll have to pay that much in taxes if I convert. Lots to think about, and do more research.

[maat55]

Can someone clear this up for me. I was about to post that I was confused and had heard that the traditional to roth could only be done in 2010. But, I just googled "traditional IRA to roth IRA conversion" and found a few articles. So, am I now correct in that if your AGI is under 100K you can convert at any time? And the 2010 rule would apply to those over 100K as the opportunity that they could do this b/c of the loophole?

I'm not 100% sure, but that's how I understood it when watching Suzie Orman.