Paying Taxes On a Roth IRA Conversion

If you happened to do a Roth Conversion during 2010, you’re likely aware that you can elect to spread the tax over 2011 and 2012, or pay all of the tax on the conversion during 2010.

But what about if you converted funds from two or more IRAs to Roth during 2010… can you have part of the funds taxed in 2010 and part of it taxed during 2011 and 2012?

Unfortunately, you can’t do this.  This goes back to the one very important factor that applies to Roth conversions:  the IRS considers all of your IRAs as one single, aggregated account for purposes of distribution taxability.  Therefore, no matter how many accounts you may have converted from in 2010, all of the distributions must be treated the same way.

Two things allow for some flexibility on this matter though…

  1. If you had other distributions in 2010 (besides your conversion), these will certainly be taxed on your 2010 return, and you still can elect to have your conversion funds taxed in 2011 and 2012 if you’d like.
  2. If you are married, each of you can choose a different taxation method for your Roth conversion funds, effectively spreading your household taxation over all three years if you like.  Your husband could have his converted funds taxed in 2010 and you could spread the tax on your converted funds over 2011 and 2012, for example.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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