In laymens terms please

[Mike Reynolds]

I have a question that I cant seem to get answered just right from my broker. A search has turned up nada here too.

Lets say I make 50k/year and have an IRA also at 50k just to keep it simple. If I do nothing I pay taxes on 50k income. But If I were to roll over my IRA into a Roth next week would my tax bracket be at 100k or still 50k? Since the money was obviously made in previous years I would like to think it would not raise my bracket that much. When it comes to the IRS though I have been wrong before.

Another question. Lets say I contributed 10k this year into my IRA. Would my total earned income be at 60K on the year?

[Brian Eastman]

@Mike Reynolds

When you convert an IRA from tax-deferred (traditional) tax treatment to Roth status, the amount converted is added as income for that year. You could convert part this year and part next to soften the blow.

When you make a Roth IRA contribution from current year income, it is not added to your income, but likewise is not reduced.

So, if you were to convert $50K from traditional to Roth, your overall taxable income would be $100K for the year.

If you were to make a $10K Roth contribution, your overall taxable income would be $50K.

Hope that helps!