Retirement Planning/IRA rollovers
I had a question about IRA rollovers. During the summer of 2014, I rolled over a 401K account (roughly 3,000 dollars) from another company into a traditional IRA account (something I should not have done) and I have not filed anything to the IRS in terms of deductions on the IRA account. I also have a Roth IRA. I have around $3,100 in the traditional IRA account, since it has been in a money market fund ever since I have generated very little income since I made the first contribution during the summer of 2014. I want rollover the traditional IRA into my current Roth but I know there is going to be tax issues with that. I was under the assumption that since I am not going to take any deductions off my taxes from the trad IRA, I would not have to tack on the money from the IRA as additional income when I convert to a Roth. But I was told differently because since the 401k contributions were pre-tax, that if I rolled the trad IRA money into the Roth IRA that I would have to add that money as additional income when I file my tax returns next April. Could you give me any advice on this situation? I am 26 year old single male and I make $42,000 dollars a year.
You will get a 1099R from your old employer for your rollover and the IRS will be their needed info. You don't need to do anything there.
You will get another 1099R for the tax year in which you convert from the Traditional to the Roth and you are correct that it will be a taxable event. The 401(k) is pretax money.
You probably should still do the conversion and pay the tax before you start making more money and get into the higher brackets. Also, buy something. You might want to look at buying tax liens because you can use smaller amounts of money and large returns on some.