Conversion to Roth IRA


A

anoop

I read an article about the following, but can't remember where.

Basically, the article said that regardless of income you can
contribute to a traditional IRA, so you can put post tax money
of 5K into the account. In the following year, convert that to
a Roth IRA. Since you already paid taxes on the 5K, you won't
have to pay much assuming the return was ~0%. Once in
the Roth IRA, it grows tax-free. So each year, you can set
aside 5K which will become a Roth IRA the following year.
This is great for folks that don't qualify for the Roth IRA due
to income limits.

Is this correct?

Anoop
 
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T

Tyler Franks

Basically, the article said that regardless of income you can
contribute to a traditional IRA, so you can put post tax money
of 5K into the account. In the following year, convert that to
a Roth IRA. Since you already paid taxes on the 5K, you won't
have to pay much assuming the return was ~0%. Once in
the Roth IRA, it grows tax-free. So each year, you can set
aside 5K which will become a Roth IRA the following year.
This is great for folks that don't qualify for the Roth IRA due
to income limits.

Is this correct?
Partly: In order to put money into any IRA, you must have Earned income, so
the "no income limits" is only partly correct. To put in $5,000, you must
have $5,000 in earned income or a spouse who qualifies you for a spousal
contribution.

On the high end of income, you statement is correct as to income, but you
may (for the years 2010 and subsequent as the law stands now) immediately
convert to a ROTH , not having to wait a year as your post indicates. How
long we have this in place is anyones guess, but hopefully Congress will be
too busy cranking out other taxes to notice this.

This is indeed a great opportunity, and has been discussed in many threads
on this newsgroup.

Tyler
 
D

Don Priebe

Since you already paid taxes on the 5K, you won't
This is only true if the new IRA account is your only IRA account. If you
have any other existing IRA accounts that were funded with deductible
contributions, then the tax you owe could be significant. See Form 8606.
 
A

anoop

This is only true if the new IRA account is your only IRA account.  If you
have any other existing IRA accounts that were funded with deductible
contributions, then the tax you owe could be significant.  See Form 8606.
All I have is a Rollover IRA. Would the taxes affect me in that case?
To avoid that, can I roll over the Rollover IRA into my current 401
(k)?

Anoop
 
C

Chuck

Partly:  In order to put money into any IRA, you must have Earned income, so
the "no income limits" is only partly correct.  To put in $5,000, you must
have $5,000 in earned income or a spouse who qualifies you for a spousal
contribution.

On the high end of income, you statement is correct as to income, but you
may (for the years 2010 and subsequent as the law stands now) immediately
convert to aROTH, not having to wait a year as your post indicates.  How
long we have this in place is anyones guess, but hopefully Congress will be
too busy cranking out other taxes to notice this.

This is indeed a great opportunity, and has been discussed in many threads
on this newsgroup.

Tyler
In general, does it matter how early or how late one converts in 2010?
Chuck
 
H

Herb Smith

All I have is a Rollover IRA. �Would the taxes affect me in that case?
To avoid that, can I roll over the Rollover IRA into my current 401
(k)?
Per IRS rules, ALL your traditional IRA accounts are lumped together,
whether taxable (rollover IRA) or after tax. Any conversion will be
prorated between the deductible and nondeductible portions (see form
8606), so may result in a substantial tax bill. Rolling the "rollover
IRA" into your current employer's 401k plan may be possible - if
permitted by that plan - leaving you with only after-tax funds in your
traditional IRA.
 
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D

D. Stussy

Chuck said:
In general, does it matter how early or how late one converts in 2010?
Chuck
Only as to the determination of value to include as taxable income.
 
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A

Arthur Kamlet

Only as to the determination of value to include as taxable income.

Slighly OT but of course there are two sides of a conversion: 1) the
disribution from the traditional IRA, and 2) the funding of the Roth IRA.

The date (and year) of distribution is determined by the first date,
and the start of the five-year Roth Conversion clock, for those under
age 59 1/2, starts on Jan 1 of the year the funding of the Roth occurs.
 

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