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Ask the Expert: The rules for ‘backdoor’ Roth IRAs

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On July 4, you wrote that the first $ 20,000 of the individual distribution of pension accounts was exempt from New York State income tax. Does that include a distribution that has been switched to a Roth IRA, sometimes called a “backdoor Roth conversion”?

Yes.

New Yorkers over the age of 59 enjoy tax relief on their first $ 20,000 annual income from a deferred retirement tax bill, regardless of what they do with the money. Distribution is still subject to federal income tax. If you transferred $ 30,000 from a traditional IRA tax-deferred IRA to a Roth IRA, you would owe federal tax on the entire $ 30,000; but New York State taxes would only owe you $ 10,000.

The transfer is called Roth’s “conversion.” A Roth IRA created with a conversion is sometimes called a “backdoor Roth IRA”. Reason: You cannot directly contribute to a Roth IRA if you are single and have an income of $ 140,000 or more or if you are married and have an income of $ 208,000 or more. But there are no revenue limits for Roth conversions, for how many conversions you can make, or for the dollar amount that can be converted from a traditional IRA to a Roth IRA. (In contrast, the maximum annual direct Roth contribution is $ 6,000 for people under 50, and $ 7,000 for people over 50.)

All withdrawals from the Roth IRA are tax-free after you turn 59½ and have an account for at least five years. But if Roth was created with a conversion you did when you were under the age of 59, you will owe a 10% early withdrawal penalty for withdrawals within five years of the conversion date.

Conclusion

New Yorkers over the age of 59 for no reason pay state income tax of up to $ 20,000 a year, distributed from a traditional IRA.

More information

bit.ly/IRS2021IRAprinosi

https://bit.ly/InvestopediaBackdoorRoth

YES An expert asks Send questions to act2@newsday.com. Include your name, address, and phone numbers. You can only answer the questions in this column. Tips are offered as general guidelines. Check with your own advisors for your specific needs.

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