Avoiding the AMT

Most, though not all, taxpayers hit with AMT have an AGI greater than 100K so they aren't eligible to convert a traditional IRA to a Roth IRA. Ira Smilovitz

If they meet the income limit (which is $100K of *combined* AGI), they are very unlikely to be in the AMT in the first place.

How is that going to work? The conversion will be taxed under both the AMT and the regular tax, so they won't save a dime. A *very* important thing to remember is that reducing the AMT line on your Form 1040 to zero does *NOT* mean you have saved anything. The AMT line is simply the difference between your tax computed under the AMT system (the Tentative Minimum Tax or TMT) and your tax computed under the regular tax system (which I'll call RT). In other words: AMT = TMT - RT (but never less than zero)

There are lots of ways to make AMT smaller (or zero):

• Leave TMT alone and increase RT -- but this won't save you any tax at all, and if RT gets bigger than TMT, you're actually paying more tax that you would have without your avoidance strategy.
• Have them both increase, but have RT increase faster. Again, you'll end up paying even more tax than if you tried to avoid the AMT.
• Have TMT drop but RT stay the same -- this time you will save money via your avoidance strategy.
• Have them both drop but have TMT drop faster -- again, you'll save money.

Heck, you could even save money even though AMT got bigger. If you did something that decreased both TMT and RT but decreased RT faster, your AMT line on Form 1040 will get bigger, but you'll be paying less in total taxes. In any event, doing a Roth conversion is very likely to result in the case where both TMT and RT increase, but RT increases faster. In other words, you're paying more taxes than if you didn't do it.

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

I do work with clients trying to minimize the AMT problem. Note, I didn't say I could eliminate it. In most cases, the best that can be hoped for is to be able to reduce it. The complexities of the AMT make each situation different for each situation. No such thing as a quick fix (other than the politicians repealing it) ___________________________________

-----> real address on hobokeni or hobokenx

It doesn't work. Roth conversions aren't AMT adjustments.

Single person, no dependents, $100,000 of AGI, $30,000 of AMT adjustments is $1,711 of AMT. It's hard to get $30,000 of AMT adjustments on $100,000 of income, and if you've got more income, you're ineligible for a Roth conversion. In any case, said person has $14,950 of tax, including the $1,711 of AMT. If you then do a $1,000 Roth IRA, you have $15,210 of tax, including $1,721 of AMT. So you've just made the AMT worse. Phoebe :)

Sounds like it might work - have not checked it out BBUUTT (that's a big but) how do you convert the IRA to a ROTH after the fact???????? 99.9999999% of these people ARE NOT you year end tax planning clients. Regards,

Mark

You had me thinking there for a second. I pay AMT. So I went to this year's return, and added $10,000 as if it were an IRA conversion. My tax went up my marginal rate plus 2%. AMT went up, not down, and other stuff phased out to create a higher-than-marginal-rate increase. Nasty stuff. I know enough to tell you "that's not how it works", but would need an afternoon and two beers to figure out exactly why. JOE