Just for clarity, you meant NON-deductible IRA, right?
Sorry if this seems like picking nits. I was momentarily confused, so others may be too (assuming I am correct).
Exactly, thanks for pointing that out.
Just for clarity, you meant NON-deductible IRA, right?
Sorry if this seems like picking nits. I was momentarily confused, so others may be too (assuming I am correct).
Not true. Taxable accounts get a step-up basis, as of the day of death.
What part isn't true? Let's say OP is able to either convert or withdraw all of the $2M in the 401K, and it goes up 50% before their death. Both accounts are now $3M.
If OP was converted it to a Roth the heirs have to withdraw it (move to a taxable account) within 5 (or is it 10) years with no tax hit. If they decide to move it lump sum to a taxable account, they now have a taxable account with basis of $3M.
If OP withdrew the 401K funds to a taxable account, heirs get a stepped up basis, so they new basis to the heirs is $3M.
So what part of what I said: "The beneficiary requirement is not a factor. At worst the beneficiary could take a lump sum distribution, which makes it the same as inheriting a taxable account. They could leave it to grow tax free for up to 10 years though." is not true?
CardsFan, could you elaborate a bit more? What does the step-up basis mean to folks who inherit these taxable accounts in terms of taxation?
So let's see if I have this straight: I can move funds from my work 401k or my previous employer 401k into a rollover IRA at Schwab, and then move that money into the Schwab Roth IRA that I already have. The amount moved is treated as ordinary income the same as wages for the purpose of calculating federal tax. Then from that point on, all future withdrawals from the Roth IRA are tax free, including investment returns?
If so, it seems odd that the IRS caps the annual allowable Roth IRA contributions at such a low figure, and only for a MAGI upper limit of $193k, yet if one contributes through the "backdoor" (a conversion) there is no limit, it's simply up to the account holder to determine the amount keeping an eye on the tax brackets.
Am I seeing this correctly? I'm wondering why those without a 401k or other tax sheltered retirement account are disadvantaged compared to those who can make a rollover.
So first, I believe you are correct about moving funds to a Roth, and provided you don’t run afoul of the minor limits your withdraws are indeed not taxed.
Then there is reasoning behind the limits. I look at it as 2 separate issues. First is getting money into a retirement account like IRA or 401K. There are various limits on how much you can contribute to IRA or 401K each year. Second issue is moving money already contributed to a non-Roth to a Roth. This is not limited by amount. It is merely managing you retirement assets in my view.
Just my take
Say you have $100k in an after tax account and $50k is cap gains. If you sold today you would pay taxes taxes on $50k. If you died today your heirs would get $100k. No taxes.
1. The five year clock would start with the ICMA Roth, whereas it's not a factor with the Schwab Roth.
Since Roth conversions are a huge part of this thread, I thought I’d ask here, instead of starting a new one.
Do Roth distributions count towards your modified adjusted gross income ?
I have a HD healthcare plan & have to watch my income very closely.
See Bold Above, I would think best option is to move to a Schwab IRA then start conversions. Just my humble opinion.Doing more research, I've discovered my work's 457 plan has a Roth option. The plan administrator is ICMA-RC which provides government plans. Evidently I can choose to direct both untaxed and taxed money into the 457 plan and its Roth option, subject to yearly allowable maximums, $26k currently.
However, I see several reasons to forego creating a Roth option and instead go with moving old 401k money into the previously established Schwab Roth IRA:
1. The five year clock would start with the ICMA Roth, whereas it's not a factor with the Schwab Roth.
I believe a previous post stated the 5 years are for first Roth.
2. The Schwab Roth allows the purchase of individual equities and a broad range of mutual funds. The ICMA plan only offers mutual funds and is not really a trading desk.One reason I moved my 401K to my Fidelity IRA
3. The 401k to Schwab Roth conversion is not subject to annual conversion limits.I believe you would need to verify with the plan administrator. My old 401K didn’t allow conversions, again a reason I moved the funds to my IRA
Have I got that right?
You've used two different terms: conversion in your first sentence and distributions in your second sentence.
Seriously ?
I asked exactly one question:
Do Roth distributions count towards your modified adjusted gross income ?
Since Roth conversions are a huge part of this thread, I thought I’d ask here, instead of starting a new one.
Do Roth distributions count towards your modified adjusted gross income ?
I have a HD healthcare plan & have to watch my income very closely.
Seriously? Paraphrasing your post:Seriously ?
I asked exactly one question:
Do Roth distributions count towards your modified adjusted gross income ?
The year I retired at age 55 I did a Roth conversion of my deductible IRA so only paid tax on the gains.
The following year I rolled my 401k into an IRA and have been doing Roth conversions every year since.
This new wrinkle I learned today is that I can contribute to a work Roth IRA
which is just added to the other conversions for tax purposes annually
so I guess the decision is, is there any benefit to opening up a Roth IRA account at work and make contributions to it when I'm just gonna convert all that money to the Schwab Roth IRA eventually?
I understand you Roth converted your Non Deductible part of your IRA & paid taxes on the gains.
How did you calculate the gains on the non deductible portion in a co mingled IRA. ? Any Special Forms to complete at the Tax Time.?
Thanks in advance
OK, I understood, thanks for your reply Alan,
In my case Deductible & Non deductible Funds are co mingled in my IRA, so when I Roth convert, I pay taxes on the deductible (Pre Tax monies) portion of the conversion funds & file Form 8606 for that year.
I wish I had kept the IRAs separate, one for Deductible & one for Non deductible funds, smart planning & foresight Alan!!
As a participant in a 457 plan, here is my take on this.I see good people on both sides. (mops brow)
OK, so what I'm reading is the very first Roth IRA you open, that starts the clock for that account and any future Roth IRA accounts? Sounds good to me.
Me and my DW both have old 401k accounts of $300k each, a Fidelity and a "Merrill," and we each have older Schwab Roth IRA accounts so those are the subject of conversion.
This new wrinkle I learned today is that I can contribute to a work Roth IRA which is just added to the other conversions for tax purposes annually so I guess the decision is, is there any benefit to opening up a Roth IRA account at work and make contributions to it when I'm just gonna convert all that money to the Schwab Roth IRA eventually?