Should an IRA converted to ROTH be added in deduction?

Paying for College
1

<p>I opened an IRA account in September 2010 and within a month converted/recharacterized it into a ROTH IRA.</p>

<p>Does this amount get added in line 32 of the 1040?</p>

<p>My accountant did and I don’t think it should be.</p>

<p>Who is correct? I don’t want this to be a deduction since it will be added back as income.</p>

2

<p>Was it a deductible or non deductible IRA? Did you have other IRA’s before the one you contributed to in 1010? If you have no other IRA’s and it was not deductible, then you need a new accountant. Otherwise, he may be correct.</p>

3

<p>It was a traditional IRA that I opened so I guess that makes it deductible?</p>

<p>I have a couple of other traditional IRAs which I opened years ago.</p>

<p>So is he correct? I’m really confused.</p>

4

<p>Contributing to a traditional IRA does not necessarily mean it was deductible. It’s deductible only if you’re within the income levels and dont’ have a 401-K at work. If you contributed to an IRA and it was deductible, then you never payed the tax on that money. When you convert the IRA to a Roth, then you pay the tax on it. After that, it grows tax free forever and you don’t pay tax even on the earnings.</p>

5

<p>[Who is correct? I don’t want this to be a deduction since it will be added back as income.]
If you are otherwise eligible for the deduction then yes goes on line 32 as a deduction. That part is almost a wash as far as FAFSA is concerned. If it is not deducted on the tax return your AGI will be higher. If it is deducted on the tax return your AGI will be lower, then FAFSA will add the deduction back to the AGI making it the same as it was before the deduction for FAFSA purposes. </p>

<p>For instance if your total income is $50,000 and you have a deduction for an IRA contribution then your AGI (which is reported on FAFSA) qould be reduced to $48,000. FAFSA would add back the contribution making the income on FAFSFA $50,000. If you did not have the deduction then the AGI would be $50,000. A wash, except for any tax implications.</p>

<p>But when you converted it to a Roth wasn’t that then shown as income on your tax return? You will need to ask the school for a special circumstances adjustment for that. They are allowed (though not required) to consider a roth conversion a special circumstance.</p>