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Re: 401(k) to roll or not?
Old 01-29-2005, 03:40 PM   #21
 
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Re: 401(k) to roll or not?

Whining.........not good.

JG
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Re: 401(k) to roll or not?
Old 01-29-2005, 04:11 PM   #22
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Re: 401(k) to roll or not?

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Whining.........not good.

JG
Not whining John - conscience.... an attribute some people have that causes them to care about more than themselves and their own. It's hard to explain. You don't want one though; life is much easier without it.
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Re: 401(k) to roll or not?
Old 01-29-2005, 04:15 PM   #23
 
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Re: 401(k) to roll or not?

Could be..................
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Re: 401(k) to roll or not?
Old 01-30-2005, 04:50 AM   #24
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Re: 401(k) to roll or not?

Quote:
The Washington Post had an interesting article today about hospitals charging low-income, uninsured patients as much as 6 times more than insured patients, and then going after them with a vengeance to collect. These are big hospitals who pay zero taxes. They get their tax exempt status by promising to provide charity care to those who can't afford to pay.
One "excuse" these hospitals always had was that they had to charge market rates to the uninsured or they would get into trouble on medicare and medicaid reimbursement. I understand that HHS recently issued a letter that lower charges could be made to the indigent without jeopardizing medicare and medicaid reimbursement. Of course, this won't help if you are not indigent and are simply soaked for big charges because you are unisured.

I represented a young women in filing bankruptcy a number of years ago. She went through successful treatment for leukemia and ended up owing some big medical bills. The hospital sent a collection agency after her. The collector told her that it was irresponsible for her to get treatment without means to pay and when she said she would have died without treatment, the collector said dying would be better than "cheating".

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Re: 401(k) to roll or not?
Old 01-30-2005, 06:44 AM   #25
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Re: 401(k) to roll or not?

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The collector told her that it was irresponsible for her to get treatment without means to pay and

when she said she would have died without treatment, the collector said dying would be better than "cheating".
JG, I wonder which one of the 2, you would consider the whiner? :-/

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Re: 401(k) to roll or not?
Old 01-30-2005, 07:24 PM   #26
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Re: 401(k) to roll or not?

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I represented a young women in filing bankruptcy a number of years ago. *She went through successful treatment for leukemia and ended up owing some big medical bills. *The hospital sent a collection agency after her. *The collector told her that it was irresponsible for her to get treatment without means to pay and when she said she would have died without treatment, the collector said *dying would be better than "cheating".
Martha, I hope your client prevailed. I also hope she had a big strong husband who followed that weasel collector to his Porsche, dragged him out by his hair, and beat him severely. And finally, I hope that her husband got off scot-free.
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Yes, Roth conversions can be taxed.
Old 01-31-2005, 03:02 PM   #27
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Yes, Roth conversions can be taxed.

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When you convert an IRA to a Roth, don't you have to pay the taxes on the converted money?

I had planned to do that anytime my fed tax rate went down to 15% over the next several years , as I assume that after I sell my house in the future, the additional investment income will probably put in the equivalent of today's 25% tax bracket. Is that a good idea? MJ ???
Yes, you pay taxes on the gains. For example, if your conventional IRA has a contribution basis of $30K (on Form 8606) and it's now worth $100K, your conversion to a Roth would subject $70K to tax at your bracket for the resulting AGI. (Your AGI would have started at some number less than $100K and would have risen by another $70K.)

I think conversion is a good idea. Our income is down in the 10% bracket and we've been converting up to the top of the 15% bracket.

The best thing about the conversion is paying the tax at a lower bracket (our tax bracket at RMD would be up in the 25% range or higher) and paying the taxes with funds outside of the IRA. The IRA's not depleted to pay the taxes so those funds boost the IRA's compounding power in a way that's the equivalent of a large donation to a Roth.

But there are other reasons to stay with a 401(k) or a conventional IRA, and Martha has touched on those reasons. We're not in any of those situations so a Roth conversion is a better deal.

Quote:
If you decide to follow the strategy of partial conversions to a ROTH each year is the amount converted put in a common ROTH
or must you create a separate ROTH each year? *The reason I ask is that I am wondering how they keep track of the 5 year rule if everything is dumped in the same pot. Thanks, Charlie *
Don't know. I'm converting our conventional IRAs into the same Roth IRA accounts that we started a couple years ago, which are still receiving annual contributions from spouse's W-2 income.

The reason I'm ignorant is that spouse & I are 43/44. We weren't planning to withdraw before ages 59.5, the conversion process should be finished in another 7-8 years, and everything will be over five years in the Roths before we think about withdrawing it. So we haven't had to consider that question.

My guess is that it depends on the Roth's transaction records. I wouldn't make a withdrawal unless I had documentation that the money had been on deposit for at least five years.

BTW, the best board I've ever seen for posting IRA questions is Ed Slott's IRAHelp Forum. Several CPAs must spend hours researching the most obtuse, arcane trivia and answering our most difficult questions with the actual IRS code references.
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Re: 401(k) to roll or not?
Old 01-31-2005, 03:40 PM   #28
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Re: 401(k) to roll or not?

Nords, I think one of us is confused there. Assuming the contributions to the IRA were pretax, you pay income tax on the ENTIRE traditional-Roth conversion: contributions and earnings.

If some of the IRA contributions were not tax deductible I'm not sure how that's handled when converting, but I would expect you pay taxes only on the gains when considering only the after-tax contributions.

You pay tax on every dollar you make. With Roth IRA's you pay it all when contributing. With traditional IRAs you pay it upon withdrawal. (Way oversimplified of course, but a reasonable way to look at it I think.)

I tried converting to max the 15% bracket when I didn't work much of 2000, but I didn't have the cash when taxes were due so I had to recharacterize (undo) the conversion. I think converting at 15% or below is a good idea assuming you think your taxes won't be lower during withdrawals.
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Re: 401(k) to roll or not?
Old 01-31-2005, 04:13 PM   #29
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Re: 401(k) to roll or not?

Thanks Nords.

Quote:
I think converting at 15% or below is a good idea assuming you think your taxes won't be lower during withdrawals.
I'll wait until the end of the year, if my fed rate is under 15% then I would convert just enough trad IRA money to keep me within 15%.

Quote:
Assuming the contributions to the IRA were pretax, you pay income tax on the ENTIRE traditional-Roth conversion: contributions and earnings.
I believe you are correct. All of the trad IRA is pre-taxed. I was wishing Nords was right.

MJ
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Re: 401(k) to roll or not?
Old 02-01-2005, 11:50 AM   #30
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Re: 401(k) to roll or not?

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Assuming the contributions to the IRA were pretax...
That's the confusion. Spouse and I had years when we couldn't qualify for a Roth and we couldn't deduct a traditional contribution, so we made the contribution with after-tax dollars.

But trying to separate the types of contributions is excessive analysis-- the paperwork does it for you. Most of us have had to file a Form 8606 reporting our IRA basis. The conversion to a Roth is also reported on Form 8606 and it's a matter of blissfully plugging in the numbers to figure out your tax bill. If you've never filed a Form 8606 (I envy those who haven't) then you're right about the "basis" being the entire IRA.

Again, the keys to conversion are:
- knowing you'll be in a higher tax bracket at RMD, even assuming that today's tax brackets survive for another couple decades,
- being able to pay the conversion taxes with funds outside of the IRA, or
- not wanting to have anything to do with RMD calculations.
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Re: 401(k) to roll or not?
Old 02-08-2006, 03:30 PM   #31
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Re: 401(k) to roll or not?

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* *Again, the keys to conversion are:
- knowing you'll be in a higher tax bracket at RMD, even assuming that today's tax brackets survive for another couple decades,
- being able to pay the conversion taxes with funds outside of the IRA, or
- not wanting to have anything to do with RMD calculations.
Once again Nords, you have given a nice thumb-nail summary.

There is no way to know what tax rates in 10,20,30 years will be, but since they are so low today (2006), there is little chance that the rates will get any lower. So it is safe to assume that we will all be paying at a higher rate in the years to come, especially when the political winds change.
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Re: 401(k) to roll or not?
Old 02-08-2006, 10:34 PM   #32
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Re: 401(k) to roll or not?

I would get the money the he11 out of a 401k after you leave. The rules in a 401k are not the same as those in a rollover IRA. They are governed by the employers terms for the 401k. Granted, they can't make them up willy nilly; they have to follow the ERISA rules etc, but they can be VERY tricky.

Especially if you pass away and leave them to your heirs. One theng we found out was, you cannot keep on passing a 401k on to the successor heirs. One time is all they typically allow (to a spouse). If one parent dies, and the other parent gets all (or some) of the 401lk acct. You should immediately roll the surviving parents 401k to a rollover IRA.

We fund out the HARD way. Cost us a bundle in taxes and lost income producing capability (since we paid taxes instead of letting that amount icompound).
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