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Using TurboTax (2020) For Roth Conversions
When it comes to managing your retirement savings, it’s important to consider strategies that can maximize your future wealth. One such strategy is converting your traditional Individual retirement account (IRA) into a Roth IRA. TurboTax, the popular tax preparation software, can help simplify the process of executing a Roth conversion in the most efficient and convenient way possible.
What is a Roth conversion, and why should you consider it? A Roth conversion involves moving funds from a traditional IRA or a 401(k) into a Roth IRA. The main advantage of a Roth IRA is that it allows your investments to grow tax-free, and qualified withdrawals in retirement are also tax-free. On the other hand, traditional IRAs are funded with pre-tax dollars, meaning you’ll have to pay taxes on the distributions during retirement.
Now, let’s explore how TurboTax can assist you with executing a Roth conversion using their 2020 software.
Step 1: Determine your eligibility
Before proceeding with a Roth conversion, you need to ensure that you meet the eligibility criteria. According to the Internal Revenue Service (IRS), anyone can perform a Roth conversion, regardless of income level, starting from January 1, 2020. Previously, there were income limitations on conversions, but those have been removed.
Step 2: Gather necessary information
TurboTax 2020 will guide you through the process of collecting the necessary information required for the conversion. You will need to have details such as your traditional IRA account balances, prior year’s tax return information, and your current year’s modified adjusted gross income.
Step 3: Open a Roth IRA
If you don’t already have a Roth IRA, TurboTax allows you to easily open one within the software. This step is crucial as it provides you with the necessary destination account for the funds being converted from your traditional IRA.
Step 4: Begin the Roth conversion process
TurboTax will prompt you to navigate to the section that handles Roth IRA conversions. You will be required to provide key details such as the amount you wish to convert and the type of accounts you are converting from. The software automatically calculates the tax implications of the conversion based on your income, deductions, and other factors.
Step 5: Paying taxes on the conversion
When you convert funds from a traditional IRA to a Roth IRA, you will owe taxes on the amount converted. TurboTax calculates the tax amount owed and provides guidance on how to pay it. You have the option to pay these taxes with funds outside of your IRA or choose to withhold the owed taxes from the converted amount.
Step 6: Complete the conversion and file your taxes
Once you have reviewed all the information and are satisfied with your Roth conversion, TurboTax will guide you through the process of completing your tax return. The software ensures that all necessary forms and schedules related to the conversion are accurately filled out. You can then e-file your tax return directly through the TurboTax software for a quick and hassle-free submission.
In conclusion, TurboTax (2020) provides a user-friendly and efficient option for executing Roth conversions. The software guides you through the entire process, ensuring accuracy and compliance with tax regulations. Before proceeding with any financial strategy, consult with a financial advisor to determine if a Roth conversion is the right decision for your specific circumstances. With TurboTax’s assistance, you can easily take advantage of the benefits that a Roth IRA offers, and pave the way for a more tax-efficient retirement plan.
Josh I tried the free Turbo tax with fake but they want W2 information can’t move forward?
What does "Qualified" mean, in the context of Dividends? Pension? Other?
Hello Josh, This is such a good video, it shows the reality of trying to do a roth conversion when you have a small income coming in each year. You can convert 20k to 25k each year while remaining in the lower tax brackets, but if your IRA or 401K is a sizeable amount it is increasing by 200K or so each year, so, you are not putting a dent in it at all. Love to hear more on potential solutions.
What additional tactics can a person in the 22% or higher federal tax bracket use in Turbo Tax to model reducing their federal and state income taxes when doing multi-year Roth IRA conversions? What are the pro’s/cons of these: Bunching Charitable Giving? Gifting through a Conservation Easement Trust? Tax loss harvesting? Delaying the start of Social Security? Other tactics?
Turbo Tax helped me with Roth conversions for the last 7 years. I used the current TT to look ahead to the upcoming year (standard deduction change, tax bracket shift, etc). I converted enough to stay inside my tax bracket (at age 65 to stay under the Medicare B trap). I now have taxes inside the 12% bracket so QDI is not taxed and convert as much to Roth staying inside that bracket. TT tells me if I convert too much and QDI starts to be taxed. Staying in 12% as I wrap up my IRA to Roth conversions. SS dropped from 85% level (I took SS at 70, she at 68) to 60% this year, and less than 30% when the conversion is done in 3 years. Due to her pension we will pay about 3% FED tax (using 2019 Turbo Tax), and 1% Indiana tax. 3 RMD's but $2K,$1K and $300 in year 3.
I have a TT file for one of us being single to get a feel for what could happen with the Widows Tax Trap. If it happens next year then Roth conversion takes 2 more years – pay about the same total tax, then drops off to 6%/1.5% – not to bad for a widow and take home more than enough for a single budget.
While paying no taxes on a Roth conversion is a noble goal, you may want to pay some taxes to take advantage of the lower married filing jointly tax brackets to avoid paying higher single tax brackets when one spouse dies. You also avoid RMD’s. Beware of the Medicare premium brackets when doing this.
Great video for us TurboTax uses. Topic for future video, process to fund a backdoor Roth for incomes exceeding the limitation ($122,000 singles). Have seen videos on the conversion process using the Fidelity / Vanguard Websites but not the process from a tax perspective, using TurboTax software.
Alternate years of Capital Gain distributions and Roth Conversions. You can keep Cap gains at 0% and then the next year you can keep the Roth Conversions at 12% or less. Except we don't know how dividends will be classified till we get the tax statement from the broker.
I think there is an order of precedence built into the tax code (or the tax forms). LT Capital gains and qualified dividends come after IRA withdrawals. But, if he did not make any capital gain distributions and took them all from the IRA – You'll stay in the 10% bracket. He might want to max out the 12% bracket between the living expense withdrawals and the conversions if there is a real risk of the RMDs throwing him into even higher brackets.
Traditional IRA conversion to Roth has to be completed by 12/31/2019 to be in the tax year of 2019. Is this correct?
Why does Turbo Tax mention California (this damn over-taxed State) because I am 57 planning on moving to Florida next year to retire. At 59 1/2, I will then transfer money from my 401(k) to my Roth to avoid RMDs. because the entire amount of my 401(k) was earned in California does that mean I will be paying more money in Taxes even though I will be a resident of Florida?
Would love to do conversions now so growth would not be taxed. But plan on taking social security at 70 and doing conversions between 62 and 70. Well conversion like, by just taking the money out since earned income will be lower and I will be in Florida instead of Ny.