Converting IRA to ROTH IRA,total income <$80000

Legal Taxes
1

I decided to convert IRA into ROTH IRA this year in US, since I have no taxable income here (so far) so total taxable income will be much below 92 000 USD (I believe is a threshold for US citizens living abroad so they don’t have to pay taxes)

Will be my no income here and conversion in US considering as my total income, so I don’t have to pay taxes to US government?

Thank you for your help

2

I don’t think it works that way. The foreign income exclusion is for earned income. A Roth conversion, AFAIK, is not earned income. They will get their cut. Go online and plug in your numbers on Taxcaster or if you have a previous version of some tax software you can put the numbers in and see.

3

Since you IRA money has not been taxed, you will need to pay tax on the money you covert to ROTH. Depending on your marital status,and how much money you wish to convert, your tax bracket may vary.

Tax Bracket Married Filing Jointly Single
10% Bracket $0 – $17,400 $0 – $8,700
15% Bracket $17,400 – $70,700 $8,700 – $35,350
25% Bracket $70,700 – $142,700 $35,350 – $85,650
28% Bracket $142,700 – $217,450 $85,650 – $178,650
33% Bracket $217,450 – $388,350 $178,650 – $388,350
35% Bracket Over $388,350 Over $388,350

Let’s say you want to convert $30,000 this year, you are single, and you do not have other dividend/interest income, your federal tax bracket will be 15%, and you need to pay state tax as well.

So, calculate which tax bracket is better for you and make sure in your cash account you have enough tax to pay by 4/15/13, then call your IRA account firm and ask them to convert $30,000 for you.

4

Thank you for your help!

5

ShaoPang is correct, converting an IRA is not earned income, so you cannot exclude it. However, if your conversion amount is low enough, your standard deduction will reduce your liability. If you happen to have any tax credits, that will help even more.

A side note, I recently learned that IRA (Roth or Traditional) contributions MUST come from earned income, so if you don’t have any earned income (foreign or domestic), you’re not supposed to contribute to an IRA!