IRA Rollover

[Jake46]

I have a traditional (non-deductible) IRA and a Rollover IRA, both with Fidelity. Can I roll the traditional IRA into the Rollover IRA? Are there tax issues to be concerned about because the contributuions in the traditional IRA were not tax deuctible and, therefore, should not be taxed when I withdraw them. I would appreciate your thoughts.
Jake46

[Brat]

You can convert some or all of the IRA to a Roth IRA. I did exactly that several years ago using money from an employer's 401(k) that I had rolled over to an IRA. The consequence is that you will pay income tax on the amount converted.

However, there are some potential complications to consider: do you have any after-tax contributions in the IRA that you describe as a Rollover IRA? parsing the after-tax money out can really complicate your life; often a rollover IRA is eligible to be rolled into a new employer's 401(k), monies converted to Roth wouldn't be appropriate; watch out for bracket creep.

[Jake46]

To address your points: I'm ineligible to open a Roth IRA until 2010 because of my AGI. I don't have any after-tax contributions in the Rollover IRA. I'm retiring in June so I am not concerned about being able to rollover into a new employer's 401(k). Thanks.
Jake46

[Brat]

Perhaps your AGI will be lower once you retire.

I didn't have any problem creating a Roth after I retired from megacorp, but then I worked only a month into the calendar year so taxable income and AGI limits weren't an issue.

[teejayevans]

To add some other ?s about converting IRA->Roth
Do you need a min. W2 income?
Do you need to be a certain age?
If not 59.5 yet, is there a 10% penalty or way to avoid it. ie 72t exception?
The taxes on the transfer amount are taken out of the transfer amount or should be paid from another source?

I assume the big plus of moving $ over to Roth while you may be a low tax bracket
at the start of ER because you a living of taxable accounts, and also the fact you
don't have to start pulling $ out at age 70, yes?
Tom

[LOL!]

Yes, you can combine your IRAs. A few years ago you could not, but the tax laws changed. Presumably you have filed form 8606 (?) with the IRS to state the amounts of your non-deductible contributions. That way you and the IRS have a record of those amounts.

There are no new tax issues to worry about because of combining the accounts. The IRS considers all your IRA money to be one big pot anyways, so when you begin withdrawing them, it will consider a pro-rata portion to have come from your non-deductible contributions no matter which account they were in anyways.

[Jake46]

Thanks for the information. Yes, I have been filing form 8606 with my taxes each year showing the amounts of non-deductible contributions. Sounds like I'm good to go.
Jake46

.

[pfpelican]

There is one difference that might matter. A rollover IRA can be added to a future employers plan (401k). A traditional IRA can't. If you combine them, you lose this right.

[Khan]

Originally Posted by pfpelican

There is one difference that might matter. A rollover IRA can be added to a future employers plan (401k). A traditional IRA can't. If you combine them, you lose this right.

Didn't that change recently?

[Brat]

Plan administrators determine whether or not they will except a new employee's rollover IRA. There is no benefit to them, and a lot of risk. Many just say "Sorry, no." If the rollover came directly from megacorp to a well recognized custodian (and you can prove it), they MIGHT agree.

[crazy connie]

I think if you combine them you may lose some protection from lawsuits It seems that employer rollovers have more protection than contribuitory IRA's. Just a point of intrest as no one here would ever be sued or have a creditor after them! Check on ED SLOTTS IRA Forum.

[Martha]

Originally Posted by crazy connie

I think if you combine them you may lose some protection from lawsuits It seems that employer rollovers have more protection than contribuitory IRA's. Just a point of intrest as no one here would ever be sued or have a creditor after them! Check on ED SLOTTS IRA Forum.

A 401k that is rolled over into a rollover IRA remains fully exempt from creditors under the bankruptcy code. A traditional IRA is exempt up to a million dollars under the code.