SEP IRA

Archive for November, 2005

Il Successo (1963) scene finali

Question: A simple Tax question regarding conversion to ROTH from IRA?

I have $100.000 in traditional IRA at the end of 2008.I am told by my Accountant that if I convert it to ROTH IRA this year(2009), the amount of Tax is $25,000 since my income tax bracket is 25%. Is this amount of Tax and the method of calculation correct or not??? Thank you for answering this question.

Answer: The amount of the conversion is added to your ordinary income. If you are in a 25% bracket, the tax will be 25% or higher. If you’re right at the top of the 25% bracket, most of it would hit the 28% bracket and some could even hit the 33% bracket.

Note that the tax cannot come out of the funds that were rolled over. If you use any of the funds to pay the tax, that is a taxable distribution subject to regular tax and the 10% penalty tax if you are under age 59 1/2.

Question: Using IRA to purchase land?

I have found a piece of land for sale. I have about 25000 in a SIMPLE IRA. Can I borrow against my IRA to purchase this property? About how much can I expect to lose thru taxes, penalties? I have one home that is mortgaged with renters living there and I live with my wife (of 1 year) in her home.

Answer: You can never use an IRA as collateral for a loan, because it is protected from creditors, therefore, useless as collateral (besides being illegal).

You or your relatives, etc. cannot directly use or control any property purchased within your IRA. There is more to it than that, but if you violate those rules it is considered a distribution subject to tax and penalty.

See IRS Publication 590 for details.