Roth IRA questions

[tmm99]

Gearing for the Roth IRA conversion this year, I have been funding my non-deductible IRA accounts for the last few years.

Does anybody know when you have to do the conversion by? I have a rollover deductible IRA I want to roll into my 401K berfore the conversion (so my tax implication is minimized) so I want to make sure I still have plenty of time left to do the conversion after the rollover.

Also, I read this below.. Does this mean from 2010 tax year on, I cannot do a Roth IRA (I make too much money) but I can do a non-deductible IRA and convert it to Roth IRA very year?? (That doesn't seem to make sense does it?) Or does it mean anybody can do Roth IRA from 2010 and beyond? I am not really sure of what "all years beyond 2010" means...

IRA Conversions in 2010

But back in May of 2006 President Bush signed a $70 billion tax cut provision that changed the eligibility rules for Roth IRA conversions. Starting in 2010, taxpayers with modified adjusted gross income of more than $100,000 will be allowed to convert a traditional IRA to a Roth IRA. This change applies to all years beyond 2010.....

 

[Gotadimple]

Does anybody know when you have to do the conversion by? .

December 31.

Also, I read this below.. Does this mean from 2010 tax year on, I cannot do a Roth IRA (I make too much money) but I can do a non-deductible IRA and convert it to Roth IRA very year?? (That doesn't seem to make sense does it?)

Yes, that's what it means.

For more info, see the web site fairmark.com

Lots of good info.

--Rita

 

[kaneohe]

Gearing for the Roth IRA conversion this year, I have been funding my non-deductible IRA accounts for the last few years.

Does anybody know when you have to do the conversion by?.

Wouldn't you just have to do it before the law allowing the conversion was changed (no immediate plans to do that that I know of). I believe you could do it in years past 2010 also. You may want to double-check whether it is ok to do the rollover of deductible IRA to 401K and subsequent Roth conversion in the same year. I would ask at the retirement sub-forum at fairmark.com and see if you can get a reply from Alan S.

 

[Nords]

Congress wants you to pay as much in taxes now (or at least over the next two years) as possible, so they're trying to give the rich taxpayers (the ones over $100K MAGI) every opportunity.

So Roth IRA contributions will continue to have limits (because otherwise you might get a tax break) but anyone/everyone will be free to convert their traditional IRAs to Roths.

You can roll over a 401(k) to a conventional IRA and convert it to a Roth on the same day if you can find a custodian who'll move that fast. I'd be surprised to see it happen in less than a month, though, and this year the custodians will be overwhelmed with rollover/conversion requests. In order to make that 31 Dec deadline you might want to start the process no later than Hallowe'en.

The best way to convert would be to roll over to a traditional IRA and then wait for the market to bottom out this year to minimize your gains. Please post that date to this board so that we can all get ready...

 

[tmm99]

Nord,

Thank you very much for a very nice explanation. It cleared up all my confusion!

I opened my non-deductible IRA in March of 2008 (for 2007 and 2008) and added some more for 2009 (the new addition is still in Prime MM fund - waiting for the market drop to move to other funds) just recently. The funds I bought in 2008 still haven't gotten back to what I paid for, so once I move the tax-deferred IRA into my current 401K, my tax implication is almost none.

I will make sure and do the conversion very soon, as soon as I get the tax-deferred IRA moved out.

Thanks again,

tmm

 

[tmm99]

Wouldn't you just have to do it before the law allowing the conversion was changed (no immediate plans to do that that I know of). I believe you could do it in years past 2010 also. You may want to double-check whether it is ok to do the rollover of deductible IRA to 401K and subsequent Roth conversion in the same year. I would ask at the retirement sub-forum at fairmark.com and see if you can get a reply from Alan S.

I didn't think that would be a problem because if the government did make me pay taxes on the non-deductible IRA that is already in my 401K, how would they rectify this with my 401K custodian? But I agree. It's good to double check, because who knows; they may try to tax me twice!

I do't have an account on fairmark.com so I posted a question on diehards for now.. It's probably time I set up an account on fairmark though...

 

[tmm99]

kaneohe,

I've found from diehards/fairmak folks that what I am trying to do is OK (doing 401K rollover and Roth IRA conversion in the same year with no complicated tax implications).

Good to get some confirmation.

 

[kaneohe]

I didn't think that would be a problem because if the government did make me pay taxes on the non-deductible IRA that is already in my 401K, how would they rectify this with my 401K custodian? But I agree. It's good to double check, because who knows; ...

I was more concerned about taxing a portion of the non-deductible IRA when you convert it since you had deductible IRA component at beginning of yr.
It may very well be that the formula for the taxable portion focuses only on yr end status and that you're ok but I'd want maybe to go thru the calculations on form 8606 and see it with my own two eyes. I think I've seen conflicting answers on forums like this....hence my ? , the reason for my cautionary comments. My 401Ks won't accept IRAs so it's beyond my personal experience.