Ask Terry Questions Social security taxes on Roth conversion

Social security taxes on Roth conversion

By Terry Savage on September 24, 2014 | Financial Planning / Retirement

Terry , I started taking Social Security before I had reached my full retirement age. Last year I converted some IRA money to a Roth IRA. Because I draw a private pension and converting the IRA I had to pay back some of my Social Security money. Is there any legal way to do this conversion without it affecting my social security income?

Terry Says:  The coversion will always be considered “ordinary income” to be added to your other income to determine your taxes — and your eligibility for certain income based programs, including Medicare!  You do have a window to “recovert” to the original IRA.   It’s called “recharacterization.”

Here’s the rule:  It needs to be completed by the last date, including extensions, for filing or refiling your prior-year tax return, which is typically on or about October 15. You can generally recharacterize all or a portion of what you converted. And if you change your mind again, assets that you recharacterize to a traditional IRA can be reconverted to a Roth IRA in the next tax year after the conversion or 30 days after the recharacterization, whichever is later. 

You should have gotten tax advice BEFORE converting your traditional IRA to the Roth.  Now if you’ve spent the money, you can’t do that.  But if you do want to recharacterize, do it quickly as the October 15 deadline is approaching.  Get some professional tax advice now — so you don’t create even more of a problem!



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