Roth questions
Roth questions
I was wondering if it's possible to open a new nondeductible IRA each year and then convert to a Roth in the same year. I'm not eligible to make direct Roth contributions.
Can I combine separate Roth accounts (same owner, obviously)?
These were subaccounts created to make use of the recharacterization advantage.
Thanks.
Venkat
Can I combine separate Roth accounts (same owner, obviously)?
These were subaccounts created to make use of the recharacterization advantage.
Thanks.
Venkat
-
- Posts: 2661
- Joined: Sun Aug 02, 2009 10:25 am
- Location: Washington
-
- Posts: 11647
- Joined: Sat Oct 04, 2008 11:42 am
Vencat, this loophole works great if you don't have any pre-tax IRA assets like Rollover IRA, SEP-IRA, SIMPLE-IRA, Traditional IRA. If you have other pre-tax IRA assets, the conversion will be subject to IRA prorata calculation and there will be a tax cost to convert.vencat wrote:Thanks. Seems like a big loophole since I get to contribute to a Roth every year though I'm ineligible!
See this WSJ article and pay attention to the section "…And Why It's Not as Easy as It Looks":
http://online.wsj.com/article/SB1000142 ... 34164.html
-
- Posts: 105
- Joined: Fri Apr 16, 2010 1:52 am
Looks like the pro-rata rule doesn't apply to you then since you have no other pre-tax IRAs. The other posters just wanted to make sure you were aware of that rule since we didn't know your situationvencat wrote:I'm not certain I understand. My wife and I can contribute $5000 each, every year since we are both less than 50. Our prior IRAs are fully converted . Am I missing anything? Everything else is in profit sharing plans, 401Ks and of course taxable accounts.
Venkat
Sorry, I do not mean to steal Venkat's thread but my situation seems similar to Vencat's.
My situation-
For tax year 2010 we (me and wife) converted ALL our tIRAs and Rollover IRAs to Roth. We will pay a substantial tax bill in April 2011 ( tax year 2010) ( married filing jointly).
Furthermore I "believe" that stocks will be cheaper on 1-1-11 than on 12-31-2011 ( or 4-14-2012). For IRA investment I prefer a lump sum transaction than the hassle of DCA. I am eligible for investing in tIRA but not directly in Roth IRA.
My plan is that we will contribute 5000 x2 to tIRA on 1-1-11 and convert it to Roth on 1-2-11.
Is there anything wrong/of concern in this plan. My belief is that as long as conversion to Roth is allowed I should prefer that route to investing in taxable account.
My situation-
For tax year 2010 we (me and wife) converted ALL our tIRAs and Rollover IRAs to Roth. We will pay a substantial tax bill in April 2011 ( tax year 2010) ( married filing jointly).
Furthermore I "believe" that stocks will be cheaper on 1-1-11 than on 12-31-2011 ( or 4-14-2012). For IRA investment I prefer a lump sum transaction than the hassle of DCA. I am eligible for investing in tIRA but not directly in Roth IRA.
My plan is that we will contribute 5000 x2 to tIRA on 1-1-11 and convert it to Roth on 1-2-11.
Is there anything wrong/of concern in this plan. My belief is that as long as conversion to Roth is allowed I should prefer that route to investing in taxable account.
Ram
If I have a traditional IRA comprised only of tax-free contributions (and earnings thereon), and my spouse has a traditional IRA comprised of non-deductible contributions, will the pro-rata rules apply when either I or my spouse convert our respective IRAs to Roth IRAs (with the result that a portion of my conversion will be deemed to include non-taxable amounts from my spouse's IRA and a portion of my spouse's conversion will be deemed to include deductible contributions from my IRA)? In case it matters, we will be filing a joint return. In other words, is each spouse's conversion to a Roth IRA completely independent events, not affected by the other spouse's IRA status?
Thanks for any input.
RoLev
Thanks for any input.
RoLev
IRA Conversions - Spouses
RoLev- The IRA accounts are treated separately. In other words, the pro rata rule would not apply if you converted only your spouse's IRA.
-James P. Dowd, CFA, CPA
-
- Posts: 7502
- Joined: Mon Dec 17, 2007 6:32 pm
It's not like it was some oversight or error. They did it deliberately to entice people in higher tax brackets to convert taxable IRA funds. A few corner cases like you aren't going to cause much of a ripple.vencat wrote:Seems like a minor free lunch/snack till Congress fixes it.
I called Vanguard and they said it was legit.
Brian