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DQOTD: 2010 Roth IRA Rollover?
Old 07-08-2008, 01:31 PM   #1
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DQOTD: 2010 Roth IRA Rollover?

I've Googled but everything I find seems to assume I already know about this regulation and I don't. Some of them sound like in 2010, traditional IRA's can be rolled over into Roth IRA's regardless of AGI, with applicable taxes spread over 2011 and 2012. DW and I have two non-deductible TIRA's (so taxes would only be on gains?) and two Rollover IRA's between us (fully taxable, from previous employers 401k plans), that we'd probably want to turn into Roth IRA's. We are still both working and our AGI will most likely be above the AGI deductibility limits in 2010. So what are the options for us or is there a good resource showing the options? TIA...
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Old 07-08-2008, 01:42 PM   #2
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Sounds like you pretty much have the options and the details down -- roll over any or all of the existing TIRAs into a Roth and pay half the tax in 2011 and 2012.

It may not be a great deal unless you expect to be in a lower tax bracket in those years (unless you think your current marginal rate is a bit lower than the RMDs would force it later). And the other thing is that for all we know, Congress could take this away next year because they say the Treasury can't afford the long-term tax hit (although it would certainly generate revenue in 2011 and 2012).
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Old 07-08-2008, 01:46 PM   #3
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If you haven't already, I'd open a Roth now. There's a five year wait on pulling out money tax free. Put in a dollar today and the clock starts running. JMO
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Old 07-08-2008, 01:47 PM   #4
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Go to Ed Slott's forum at IRAHelp.com - Your One Stop to All Your IRA Questions

I'm not sure Congress will act on this. After all, when they allowed folks to convert to Roths and pay the taxes over 4 years, only 25% actually did it, far from the windfall they expected.........

Congress cares about money NOW, not later, so they no doubt look forward to the increased revenues to help fund pork barrel and earmarked projects..........
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Old 07-08-2008, 01:50 PM   #5
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Originally Posted by Art G View Post
If you haven't already, I'd open a Roth now. There's a five year wait on pulling out money tax free. Put in a dollar today and the clock starts running. JMO
I'm not eligible for a Roth IRA or even a deductible TIRA, that's why I am asking...
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Old 07-08-2008, 02:04 PM   #6
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Loophole

Excess Contribution Penalty Tax

If you make an excess contribution and fail to correct it you're required to pay a 6% penalty each year the excess contribution remains uncorrected. For example, suppose you made a $3,000 annual contribution to a Roth IRA early in 2003, then got a larger bonus than you expected and found that your permitted contribution was only $1,800. Your excess contribution was $1,200. If you didn't correct the excess contribution for 2003, you had to pay $72 excess contribution tax (6% of $1,200). And if you left the problem uncorrected beyond the end of 2004, you owe another $72. You'll continue to owe this tax each year until you correct the excess contribution.
There are three ways to correct the situation. First, you can withdraw the excess contribution and any earnings on that amount. This works in all situations, although it isn't always the best choice. Second, you can recharacterize the excess contribution as a contribution to a traditional IRA. This works if you are over the limit for Roth IRAs without being over the limit for all IRAs in general. Third, you can leave the excess in the Roth and use a deemed contribution to correct it the next year. This choice requires you to pay a penalty for one year, but sometimes that's the lesser of two evils.

Excess Annual Contributions
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Old 07-08-2008, 02:10 PM   #7
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I'm not eligible for a Roth IRA or even a deductible TIRA, that's why I am asking...
I wonder if someone would let you fund one today with (say) $100, and then in 2010 after you convert your others to a Roth you could withdraw the $100 and pay penalties on it as an excess contribution for 2008? If the five-year rule for distributions is a concern, this could cut it to three for a rather small amount of penalties.

Not sure this is a good idea or even if it would work; just thinking aloud here. And I'm not sure you would still be considered as "opened and funded" your first Roth in 2008 if you withdrew all 2008 contributions.
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Old 07-08-2008, 02:35 PM   #8
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I believe that was what I just said.
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Old 07-08-2008, 08:53 PM   #9
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My CPA tells me that I can do the 2010 rollover even though I'll have no earned income that year. This, combined with tax consequences delayed and spread over two tears (2011 and 2012) is, he says, what makes this an exceptionally good opportunity for myself and other retirees.

As a side note, I have found that I get outstanding service and short wait times by phoning the IRS late in the evening during weeknights. You'll typically get smart people with all the time in the world to answer your tax questions.

Tom
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Old 07-11-2008, 10:19 PM   #10
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Quote:
Originally Posted by Midpack View Post
DW and I have two non-deductible TIRA's (so taxes would only be on gains?) and two Rollover IRA's between us (fully taxable, from previous employers 401k plans), that we'd probably want to turn into Roth IRA's.
You need to be careful with when determining your taxes, if you later decide to only do a partial conversion.

You must determine the percentage of your TOTAL IRA contributions that were deductible. Then, you must pro-rate, at that percentage, each partial withdrawal (or conversion to Roth), regardless of which actual IRA account you used for the withdrawal/conversion.

Example:

Deductibe acct. current value: 70K (original contributions: 30K)
Non-deductible acct. current: 20K (original contributions: 10K)

Then, for each partial withdrawal/conversion, 75% (30K/40K) of the converted amount will be treated as coming from the Deductible account and 25% from the Non-Deductible acct.
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Old 07-13-2008, 08:31 PM   #11
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Quote:
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I'm not eligible for a Roth IRA or even a deductible TIRA, that's why I am asking...
My wife and I are using this. We also are ineligible to contribute to a Roth, but we had one prior to becoming ineligible...and it's been open 10 years so we're good. If you can do without the funds for 5 years, go ahead and roll the IRAs over to the Roth in 2010.

IMO tax rates in the long term will be higher than today, although your particular circumstance will depend on what bracket you're in today and where you think you'll be later. We're in the 28% bracket today, and will likely be in the 25% bracket upon ER...but I'm guessing the 25% bracket will become a 30% bracket by that time.

Dave
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