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?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 08:14 AM   #1
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?? for uber-savers, non-deductible IRA to Roth IRA in 2010

I am leery of contributing to a non-deductible traditional IRA because I did it in the past when I should have just contributed to after-tax investments. In essence, I converted capital gains tax into marginal income tax, much like an annuity would do for me. Plus, I am not able to deduct losses in my IRA.

Currently, we are not eligible to contribute to Roth IRAs, but could convert traditional IRA to a Roth IRA in 2010 when the income restrictions are suspended.

My questions are: Are you considering this? Have you really thought it through? What are the pros and cons? Thanks!
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 09:50 AM   #2
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

keep in mind that if you have any pretax ira $ they will be aggregated with already taxed $ when making the conversion cost calculation. If you have no pretax $ or you can roll pretax into 401k ahead of time it seems like a no brainer to contribute to non deductible then convert when eligible only paying taxes on gains.
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 12:02 PM   #3
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

In some situations you can deduct losses on IRA investments. I mention this just in case you were not aware.

I have thought this through quite a bit. For me it makes sense to contribute to traditional IRAs even if the law change for 2011 doesn't last. I plan to be able to convert in the future after RE when I have lower tax rates.
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 01:05 PM   #4
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

Quote:
Originally Posted by LOL!
I am leery of contributing to a non-deductible traditional IRA because I did it in the past when I should have just contributed to after-tax investments. In essence, I converted capital gains tax into marginal income tax, much like an annuity would do for me. Plus, I am not able to deduct losses in my IRA.
You are technically correct that you cannot deduct losses in your IRA, but there are situations when IRA losses can be deductible.
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 03:35 PM   #5
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

Quote:
Originally Posted by retire@40
You are technically correct that you cannot deduct losses in your IRA, but there are situations when IRA losses can be deductible.
Yeah, but you have the ditch the IRA.

LOL, we are thinking of doing the same thing. Most of our money already is in after tax investments. Given that fact, the fact that we don't need right now what we would contribute to the IRA, it seems to make sense.
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 04:13 PM   #6
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

Had a question about the 2010 situation (sorry if this has been answered already).

2010 is the STARTING year that the $100,000 AGI rule (for conversions) is no longer in effect, not the ONLY year, correct?

So, can folks get around the Roth IRA contribution income limits by contributing to a non-deductible IRA EVERY year and immediately converting that contribution to the Roth IRA before much earnings have been built up? Seems like you'd get a similar effect.
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 06:08 PM   #7
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

Quote:
Originally Posted by gindie
Had a question about the 2010 situation (sorry if this has been answered already).

2010 is the STARTING year that the $100,000 AGI rule (for conversions) is no longer in effect, not the ONLY year, correct?

So, can folks get around the Roth IRA contribution income limits by contributing to a non-deductible IRA EVERY year and immediately converting that contribution to the Roth IRA before much earnings have been built up? Seems like you'd get a similar effect.
From an article that someone showed me at work.. yes, you can make a non deductible contribution to an IRA for the next few years and convert them all to ROTH in 2010... I have not decided yet, but might do this... will put about another $20K into the ROTH...
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-20-2006, 06:24 PM   #8
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

Texas Proud -

Thanks for the response. But, my question was what you could do after 2010.

Folks could fund their non-deductible IRA and do an immediate conversion to the Roth (therefore incurring little if no tax liability because earnings wouldn't have built-up). You'd have the same effect as a direct contribution to the Roth, but bypassing the income limits (160K for marrieds, etc.).
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010
Old 12-21-2006, 12:25 AM   #9
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Re: ?? for uber-savers, non-deductible IRA to Roth IRA in 2010

Quote:
Originally Posted by gindie
Thanks for the response. But, my question was what you could do after 2010. Folks could fund their non-deductible IRA and do an immediate conversion to the Roth (therefore incurring little if no tax liability because earnings wouldn't have built-up). You'd have the same effect as a direct contribution to the Roth, but bypassing the income limits (160K for marrieds, etc.).
The Fairmark website has a good article about this at http://www.fairmark.com/rothira/expand.htm. Scroll down and read the section titled "Income Limitation for Conversions".

Some choice excerpts:
"Implications. This change in the law has some interesting implications. Consider an individual with annual income of $200,000. This person can't make a regular contribution to a Roth IRA — her income is too high — but she'll be able to contribute to a traditional IRA and then convert to a Roth. As the law is written, there doesn't appear to be any obstacle to doing this annually, effectively skirting the income limitation on regular contributions."

and

"Possible change. Sometimes a tax law is amended or repealed before it even takes effect. That's a distinct possibility here. Congress removed the income limitation on these conversions because it allowed them to bring this tax law into compliance with budget limitations. The idea was that more people would convert to Roth IRAs and therefore pay more taxes in the short run. (They didn't care about the long run because the budget rules don't look that far ahead.) There's a possibility that Congress will take a second look before 2010 and decide this change isn't a good idea. If that happens, people who made nondeductible contributions to traditional IRAs may be stuck without a way to convert to a Roth."

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