Any Holding Time for an IRA before Convertion to Roth?


A

alex

If I contributed to an IRA today when can I converted it to a Roth
IRA? Tomorow, 30 days, ...?
Thanks, Alex
 
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J

JoeTaxpayer

If I contributed to an IRA today when can I converted it to a Roth
IRA? Tomorow, 30 days, ...?
Thanks, Alex
No. Just long enough to count as part of the non-deducted and pretax
prorating. e.g. you have $8000 in pretax IRA, this year you deposit
$2000 post tax, the conversion is considered 20% post tax money/80% pretax.
 
R

removeps-groups

If I contributed to an IRA today when can I converted it to a Roth
IRA? Tomorow, 30 days, ...?
I think you can do your 2009 non-deductible traditional contribution,
1 second later do your 2010 non-deductible traditional contribution, 1
second later convert your entire IRA (which hopefully is all non-
deductible) into a Roth.
 
R

rick++

No. Just long enough to count as part of the non-deducted and pretax
prorating. e.g. you have $8000 in pretax IRA, this year you deposit
$2000 post tax, the conversion is considered 20% post tax money/80% pretax.
A technicallity- the pro-rating is done on the Dec 31 value of all
regular IRAs,
not on any of the days you did the conversion. I was surprised when
I filled out a 8606 for a 2009 conversion.
 
T

Tom Russ

A technicallity- the pro-rating is done on the Dec 31 value of all
regular IRAs, not on any of the days you did the conversion.
 I was surprised when I filled out a 8606 for a 2009 conversion.
I can see the logic, especially since IRAs are not normally priced on
a daily basis. The only definitive statement is the Form 5498(?)
statement you get each year.

I haven't looked at 8606, but I presume that it must have some
provision for current-year contributions as well. Otherwise I can't
see how it would work at all.

Consider:
The previous year's traditional IRA value is $15,000. Let's assume
that this is all non-deducted contributions (all earnings were
balanced out by the recent market decline).
This year you add in $5,000 and deduct it.
Then you convert the entire $20,000 to a Roth IRA. So at the end of
this year you have $0 in the traditional IRA.

So what part of the conversion is considered taxable? Logically it
should be 25%, but how does one get there from the year end values?
 
R

removeps-groups

I can see the logic, especially since IRAs are not normally priced on
a daily basis.  The only definitive statement is the Form 5498(?)
statement you get each year.

I haven't looked at 8606, but I presume that it must have some
provision for current-year contributions as well.  Otherwise I can't
see how it would work at all.

Consider:
  The previous year's traditional IRA value is $15,000.  Let's assume
that this is all non-deducted contributions (all earnings were
balanced out by the recent market decline).
  This year you add in $5,000 and deduct it.
  Then you convert the entire $20,000 to a Roth IRA.  So at the end of
this year you have $0 in the traditional IRA.

  So what part of the conversion is considered taxable?  Logically it
should be 25%, but how does one get there from the year end values?
Here's another example. Person has no money in IRA's. On Feb/1/2010
at 1pm they make a non-deductible contribution of $5000 for 2009, at
1:15pm they make a deductible contribution of $5000 for 2010. At 1:30
they transfer the $10000 into a Roth. The value of the IRA no
12/31/2009 is zero; the value of the traditional IRA on 12/31/2010 is
also zero.
 
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A

Arthur Kamlet

Here's another example. Person has no money in IRA's. On Feb/1/2010
at 1pm they make a non-deductible contribution of $5000 for 2009, at
1:15pm they make a deductible contribution of $5000 for 2010. At 1:30
they transfer the $10000 into a Roth. The value of the IRA no
12/31/2009 is zero; the value of the traditional IRA on 12/31/2010 is
also zero.

Are you certain you don't add 2009 contributions made after Dec 31
to the Dec 31 amount?
 
R

removeps-groups

See Line 2 of Worksheet 1-5 inhttp://www.irs.gov/pub/irs-pdf/p590.pdf
Here's what worksheet 1-5 would look like for year 2010. Something's
wrong with my calculations because it says the entire conversion is
tax free, but 5k should be taxable.

1. Enter the basis in your traditional IRAs as of December 31,
2009 . . .

In my scenario: $0


2. Enter the total of all contributions made to your traditional IRAs
during 2010 and all
contributions made during 2011 that were for 2010, whether or not
deductible. Do not include
rollover contributions properly rolled over into IRAs. Also, do not
include certain returned
contributions described in the instructions for line 7, Part I, of
Form 8606. . . .

In my scenario: $10000


3. Add lines 1 and 2 . . .

In my scenario: $10000


4. Enter the value of all your traditional IRAs as of December 31,
2010 (include any outstanding
rollovers from traditional IRAs to other traditional IRAs). Subtract
any repayments of qualified
disaster recovery assistance or recovery assistance
distributions . . .

In my scenario: $0 because the traditional IRA is converted


5. Enter the total distributions from traditional IRAs (including
amounts converted to Roth IRAs that
will be shown on line 16 of Form 8606) received in 2010. (Do not
include outstanding rollovers
included on line 4 or any rollovers between traditional IRAs completed
by December 31, 2010.
Also, do not include certain returned contributions described in the
instructions for line 7, Part I,
of Form 8606.) Include any repayments of qualified disaster recovery
assistance or recovery
assistance distributions . . .

In my scenario: $10000


6. Add lines 4 and
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.


In my scenario: $10000


7. Divide line 3 by line 6. Enter the result as a decimal (rounded to
at least three places).
If the result is 1.000 or more, enter
1.000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.

In my scenario: 1.0


8. Nontaxable portion of the distribution.
Multiply line 5 by line 7. Enter the result here and on lines 13 and
17 of Form 8606 . . .

In my scenario: $10000


9. Taxable portion of the distribution (before adjustment for
conversions).
Subtract line 8 from line 5. Enter the result here and if there are no
amounts converted to Roth
IRAs, stop here and enter the result on line 15a of Form
8606 . . . . . . . . . . . . . . . . . . . . . . . . 9.

In my scenario: $0
 
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P

Phil Marti

Here's what worksheet 1-5 would look like for year 2010.
I suspect the confusion/problem lies in the footnotes to that
worksheet. Instead of that, use Part I of Form 8606. You'll see that
the taxable portion of the conversion is properly calculated.

Phil Marti
Clarksburg, MD
 
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