Traditional IRA conversion into ROTH before 59 1/2

[CABarb]

Hi,

I believe I've made a mistake in converting my traditional IRA a bit prematurely. From what I understand, I could have saved the 10% tax if I'd taken the conversion after age 59 1/2. I'm age 58 and still unemployed (but looking for a job).

I'd sold my trad. IRA 12/12/13 but haven't converted it into a ROTH IRA. How long do I have to put the funds into a ROTH IRA? And since I'm paying taxes on the early withdrawal, can I do it anytime after April 15? Or does it have to be done by April 15th. I believe I could've saved the 10% had I waited until after age 59 1/2.

I'm not as experience as most of you in investing and I think I'll have to see a tax advisor the next time before I make and decisions to sell my holdings.

Appreciate any input you can give me.

Thanks,

Barb

 

[GrayHare]

If "sold" means your funds are no longer in an IRA, and more than 30 days have elapsed, it is too late to put them back into an IRA of any type, except as fresh, annual contributions if you have earned income.

 

[CABarb]

I'm trying for find a job - have had interviews but keep being told I'm overqualified. Hoping to land a job some time in the very near future. Shouldn't have listened to the Fidelity adviser. I'm going to a tax adviser before making future decisions.

I would have placed the funds into a ROTH IRA within the required time frame. There were deaths in the family and I'd forgotten about it until too late. Thanks for your input.

 

[Animorph]

I converted from traditional IRA to Roth IRA with Fidelity many times last year. No need to withdraw the money. Create a new Roth account, go to your IRA and select the convert to Roth option, and select the shares you want to move into the new Roth. It takes effect the same day if you do it before market close (or within two hours after I believe). You usually don't want to get stuck with a check in your hands.

 

[GrayHare]

If by "sold" you mean you sold your IRA investments, but the resulting dollars are still in what the broker labels an IRA account, you owe no early withdrawal penalty and you can convert those dollars to Roth if you wish in the manner Animorph suggests. The key is whether the sale you did a few months ago left the dollars inside an IRA account or took them out.

 

[pb4uski]

Barb, did you receive a check from your IRA?

If you didn't receive a check, as other have suggested, you may have just sold the investments that were in the IRA and the proceeds from those sales are still in the IRA as cash. If this is the case then you do not have a problem.

So you need to get clarity over what really happened before fretting about this too much.

 

[CABarb]

All,

I am sorry that I didn't check more thoroughly into what happened before posting here. After I'd posted my reply, I decided to go back and check exactly what actions I had taken after cashing out the traditional IRA. I found that I did convert to a ROTH account. What was confusing was the amount of money in the converted account as it was larger than my cash out amount. Then I realized that I had some ROTH contributions in the Cash Reserves from previous years.

When I converted the traditional IRA into ROTH, I also added the cash reserve funds and that's what changed the cost basis to a higher amount. My apologies!! But I have learned something from the exchanges. Thanks again for your help.

 

[pb4uski]

I'm glad it worked out ok.

 

[Animorph]

Glad it worked out!

Just for completeness:
Publication 590 (2013), Individual Retirement Arrangements (IRAs)


"Conversion methods. You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways.

• Rollover. You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution.
  
• Trustee-to-trustee transfer. You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA.
  
• Same trustee transfer. If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA. "

 

[tessaduncan]

BTW there is no 10% penalty for converting from tIRA to a Roth, even before age 59 1/2. It's qualified.