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Avoid unexpected tax on Roth IRA conversions

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Q.  In a recent article on Roth IRA conversions, you stated that you could avoid a eavy tax by rolling over traditional IRA funds to a qualified plan. I thought tax is due when you convert a qualified plan to a Roth. Is your article correct? J.H., CFP, via e-mail

A.  Yes. Individuals are making nondeductible contributions to traditional IRAs in anticipation of a Roth IRA conversion. But IRA distributions are treated as coming pro rata from all IRAs, including ones with deductible contributions. Therefore, the individual may owe an unexpected tax at conversion.

Tip: Shift taxable IRA funds to a qualified plan before the conversion. Then you owe little or no tax on the traditional IRA-to-Roth conversion.

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