I'm retired and over 60 years old. I have several questions about Roth conversions. Am I right that I don't need current earned income to be eligible to convert money from a 403(b) plan or a traditional IRA to a Roth IRA? If I do a conversion, will I be required to do one every year? I believe New York exempts up to $20,000 of annual retirement income from state income tax. Does this $20,000 include income from a traditional IRA? Can my wife and I potentially convert $40,000 per year free of state income tax?
You have an excellent grasp of the Roth conversion rules.
You must have current earned income to make new contributions to a Roth IRA, but there's no earned income eligibility requirement for converting money from a tax-deferred retirement account to a Roth IRA.
Doing one Roth conversion doesn't obligate you to do future conversions. You can decide every year whether to do one.
The amount you convert is included in your annual taxable income. However, New York residents over age 59 1/2 don't owe state income tax on the first $20,000 of their annual retirement income. The exclusion applies to income from all tax-deferred retirement accounts. If you took $12,000 from your 403(b) plan and $8,000 from your IRAs, for example, the entire $20,000 would be free of state tax. But each taxpayer can only claim the exclusion on distributions from his or her own retirement accounts. You can't pass an unused part your exclusion to your spouse even if you file a joint return.
THE BOTTOM LINE If you and your wife can each claim the $20,000 exclusion on pension and retirement income, together you can convert $40,000 a year to Roth IRAs free of state income tax.
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