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Side tax effects of Roth IRA conversion

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Q. I converted part of an IRA to a Roth in 2013. Is the conversion income subject to the new Medi­­care surtax? J.S.L., Boise, Idaho

A. Not directly, but it can still have a negative effect. The 3.8% Medicare surtax applies to the lesser of your “net investment income” (NII) or the excess of modified adjusted gross income (MAGI) over $200,000 for single filers and $250,000 for joint filers. The Roth conversion is treated as a distribution of IRA funds. Therefore, it doesn’t count as NII for purposes of the surtax calculation, but it increases your MAGI in 2013.

In the end, it could result in an extra 3.8% tax bill on part of all of your NII.

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