I converted a 401(k) to a ROTH in 1998. Since this is a taxable event I understand that it affects my AGI and that I have to pay additional federal taxes. On my Michigan state tax return I then used this same AGI and paid the additional tax at the state level as well. This year I have someone else preparing my taxes and they stated that I should not have included the additional taxable income resulting from the ROTH conversion on my state return. Is this true? I fear having to pay late fees and penalties if the person is wrong.

[This message has been edited by Kingsley (edited 03-14-2000).]

[This message has been edited by Kingsley (edited 03-15-2000).]

Each state is different, and you did not mention which state you file. Your post indicates you are from MI, which is a state I have no tax knowledge about. You really need to check with a local pro as to how your state handles the tax on Roth conversions.


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Barry Picker, CPA/PFS, CFP
New York, NY

Mr Picker

State income tax can be a big tax bite for large IRA conversions. Are you aware of anyone actually taking up residence in one of the State Income tax-free states (or a State, if any, that doesn't tax IRA withdrawals for conversions) just long enough to qualify for this tax break?

For people now living in States with relatively high income tax, doing the above could theoretically result in the amount of money saved growing in 30 years to nearly equal the amount originally converted.

Art