IRA Rules

Archive for November, 2006

Wise Field School: Love Story by Taylor Swift

Question: Question about Tax Basis For IRA Withdrawal?

I don’t throughly understand what the basis would be.
This is what I think, a person has $8000 in their account and they want to withdrawl it all.
If $5000 was invested (and wrote off prior) Then $3000 would be the basis (8000-5000=interest earned)
Early penalty is not in issue because of the 591/2 year rule.
So is this correct? If not please explain. Thanks!
Yes, it is a traditional. And I was afraid since the principal was wrote off it was a 0 basis.
So do I owe F.I.C.A. since it’s unearned income?

Answer: The basis is the total of any “non-deductable” contributions that were made. If all of the previous contributions were deducted on prior year’s returns, the basis would be $0.00.
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No you will not owe FICA on this distribution but, if you are under age 59 1/2, you will owe a 10% penalty.

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Question: Roth IRA Conversion in 2010 – Federal and State Tax?

Let’s say I have $20,000 in Traditional IRA. In 2010, if I rollover entire amount to Roth IRA, am I taxed as ordinary income of $10,000 each in 2011 and 2012? What about in 2010?

Answer: Dear vid..: You are right on, 2010 will have a pass, unless you make an election to report it all in 2010. This is a new law and remember also the $100,000 AGI restriction goes away in 2010. This presents a great opportunity for some interesting tax planning strategy’s with respect to income for the tax years 2011 and 2012 and your projected income for those years. Nice catch on the new law!! Yes ordinary income and CA generally follows the Federal. This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provide. Click on my profile to read more.
Errol Quinn Enrolled Agent Master Tax Advisor

Be free of federal income tax forever using the Roth IRA