If I convert my traditional IRA to a Roth IRA in 2010, do I pay state tax in addition to federal or only fed?

Question

I live in NY city and am not sure if I have to pay NY city and state taxes when I do the conversion to Roth as well as federal taxes. Thank you!!

Answer 1

The amount withdrawan form Trad IRA is taxable income for both federal and state tax returns.

Read about Trad IRA and Roth IRA http://taxipay.blogspot.com/2008/05/trad...

Answer 2

Depends on the state.

Answer 3

That's odd.  From a quick browse of the 2007 NY state tax instructions, you ended up paying state income tax on IRA contributions, but can only deduct up to $20,000 annually of IRA distributions.  So I would try to avoid converting more than $20,000 per year to the Roth.

Although, the feds will allow you to spread tax for a 2010 conversion over 2011 and 2012.

I am gradually converting IRA to Roth IRA at about $10,000/yr to avoid bumping my tax bracket (offset by 401k contributions), with fed tax covered by W-4 withholding adjustment.  I was pleasantly surprised that IL does not tax IRA distributions, so no state tax for conversions (and no state tax for traditional IRA contributions either).