Roth questions

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Topic Author
vencat
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Joined: Thu Sep 10, 2009 6:30 pm

Roth questions

Post by vencat »

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
GammaPoint
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Post by GammaPoint »

If you've got two ROTHs at different custodians and move one to the other, it should join them and not give you two separate.
livesoft
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Post by livesoft »

Yes, you can combine Roths. Some folks do not want to do so until the possibility of recharacterizing or undoing the contribution is past. After that point, they combine Roth accounts.

Yes, it is possible to open new IRAs (even multiple IRAs) each year if eligible.
Topic Author
vencat
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Post by vencat »

Thanks. Seems like a big loophole since I get to contribute to a Roth every year though I'm ineligible!

Venkat
livesoft
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Post by livesoft »

You must be eligible for those non-deductible tIRA contributions though or you will not have anything to convert.
DSInvestor
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Post by DSInvestor »

vencat wrote:Thanks. Seems like a big loophole since I get to contribute to a Roth every year though I'm ineligible!
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.

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
Topic Author
vencat
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Post by vencat »

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
cliffedelgado
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Post by cliffedelgado »

vencat 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
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 situation
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ram
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Post by ram »

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.
Ram
Topic Author
vencat
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Post by vencat »

Ram,

Your situation and question is exactly the same as mine.
Seems like a minor free lunch/snack till Congress fixes it.
I called Vanguard and they said it was legit.
Venkat
livesoft
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Post by livesoft »

@ram, the only thing wrong with your plan is that you will have to wait until January 3rd when the financial institutions are actually open.

Also note that 12-31-2010 is a federal holiday.
RoLev
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Post by RoLev »

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
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norcap
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IRA Conversions - Spouses

Post by norcap »

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
Default User BR
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Post by Default User BR »

vencat wrote:Seems like a minor free lunch/snack till Congress fixes it.
I called Vanguard and they said it was legit.
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.



Brian
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