Fidelity tIRA -> Roth conversion

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Topic Author
samsdad
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Fidelity tIRA -> Roth conversion

Post by samsdad » Sat Feb 09, 2019 10:14 pm

1. Is it true that I can do an in-kind conversion of the traditional IRA I have in Fidelity (about $10k) to an as-of-now-non-existent Roth also in Fidelity?

All of the monies are from deductible tIRA contributions from the prior two years. I'd plan on paying taxes on the conversion this year (during tax season 2020).

2. Would any of this affect my ability to max out my tIRA for this year?

Thanks

RetiredCSProf
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Re: Fidelity tIRA -> Roth conversion

Post by RetiredCSProf » Sat Feb 09, 2019 10:37 pm

1. To do a Roth conversion from your tIRA at Fido, you will first need to create a Roth account and name a beneficiary. Then you can convert funds in-kind from your tIRA account to your Roth account. The only caveat is that you can convert by quantity of shares and not by dollar amounts.

If you want to convert a precise dollar amount, you would need to transfer the funds to a MM account in the tIRA and then convert by transferring funds from the MM account in the tIRA into a MM account in Roth.

To convert funds in-kind (not in a MM) and avoid market price fluctuating throughout the business day, a Fido representative advised me to request the conversion over the phone two hours after the market closes.

2. I don't know the answer to the question about maxing out your tIRA

Topic Author
samsdad
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Joined: Sat Jan 02, 2016 6:20 pm

Re: Fidelity tIRA -> Roth conversion

Post by samsdad » Sat Feb 09, 2019 10:39 pm

RetiredCSProf wrote:
Sat Feb 09, 2019 10:37 pm
1. To do a Roth conversion from your tIRA at Fido, you will first need to create a Roth account and name a beneficiary. Then you can convert funds in-kind from your tIRA account to your Roth account. The only caveat is that you can convert by quantity of shares and not by dollar amounts.

If you want to convert a precise dollar amount, you would need to transfer the funds to a MM account in the tIRA and then convert by transferring funds from the MM account in the tIRA into a MM account in Roth.

To convert funds in-kind (not in a MM) and avoid market price fluctuating throughout the business day, a Fido representative advised me to request the conversion over the phone two hours after the market closes.

2. I don't know the answer to the question about maxing out your tIRA
Thanks

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RickBoglehead
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Re: Fidelity tIRA -> Roth conversion

Post by RickBoglehead » Sat Feb 09, 2019 10:47 pm

Converting a tIRA to ROTH has no impact on your ability to contribute to either a tIRA or a ROTH IRA.
Avid user of forums on a variety of interests - financial, home brewing, F-150, PHEV, home repair and more. Enjoy learning and passing on knowledge.

JBTX
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Re: Fidelity tIRA -> Roth conversion

Post by JBTX » Sun Feb 10, 2019 1:32 am

RickBoglehead wrote:
Sat Feb 09, 2019 10:47 pm
Converting a tIRA to ROTH has no impact on your ability to contribute to either a tIRA or a ROTH IRA.
Wouldn't converting from traditional to Roth increase your AGI for the year of conversion which may in fact affect your ability to contribute to traditional or Roth IRA for that year only?

libralibra
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Re: Fidelity tIRA -> Roth conversion

Post by libralibra » Sun Feb 10, 2019 2:58 am

JBTX wrote:
Sun Feb 10, 2019 1:32 am
RickBoglehead wrote:
Sat Feb 09, 2019 10:47 pm
Converting a tIRA to ROTH has no impact on your ability to contribute to either a tIRA or a ROTH IRA.
Wouldn't converting from traditional to Roth increase your AGI for the year of conversion which may in fact affect your ability to contribute to traditional or Roth IRA for that year only?
Conversion doesn't affect Roth MAGI. It does affect tIRA MAGI for deductibility, but it makes no sense to contribute to a deductible tIRA the same year you do a conversion anyway.

Technically, OP only asked about contributing to a tIRA and not whether its deductibility is affected, so Rick is right.

(And thanks Prof for the previous info about process of conversion in Fidelity. I needed this info too.)

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Epsilon Delta
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Re: Fidelity tIRA -> Roth conversion

Post by Epsilon Delta » Sun Feb 10, 2019 3:51 am

libralibra wrote:
Sun Feb 10, 2019 2:58 am
but it makes no sense to contribute to a deductible tIRA the same year you do a conversion anyway.
It makes sense in at least the following cases.
1) State allows the deduction and does not tax the conversion (e.g. NY over age 60, and some other conditions).
2) You have basis in the tIRA.

Topic Author
samsdad
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Re: Fidelity tIRA -> Roth conversion

Post by samsdad » Sun Feb 10, 2019 6:15 am

I forgot that it might affect this year’s tIRA deductibility. :shock: I think I’ll be able to get it done without hitting the phaseout.

As for the making sense issue, I have some ETFs in my Fido tIRA that I don’t want to sell that I have to pay commissions on to invest in—that I hope to have a large increase in over the next 20-30 years and I’m trying to avoid big taxes later on.

I’d rather just convert now (in kind) and pay the marginal tax rate on ~$10k at 22%, while also contributing to a tIRA that I have in Vanguard that’s feeding a mutual fund that I don’t think is going to grow as fast (according to my crystal ball).

I hope that makes sense.

libralibra
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Re: Fidelity tIRA -> Roth conversion

Post by libralibra » Sun Feb 10, 2019 1:55 pm

yep, 3 good points! (I had thought of #2, but OP mentioned these are all pre-tax assets.) Interestingly, this is a way to skip the taxes on (presumably large) commissions, by opening and buying first in a tIRA and then converting.

I need to check into #1. State taxes are the one thing preventing me from converting. If there is a way to avoid them (besides moving that is), that would help quite a bit.

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