Traditional to Roth conversion

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slow n steady
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Traditional to Roth conversion

Post by slow n steady » Thu Sep 13, 2018 2:22 pm

I am planning on converting from a traditional IRA to a Roth IRA up to the top of the 12% bracket this year. I already have a Roth IRA open. One of the reasons for wanting to convert is I want to have access to the converted money after 5 years.

Would it be beneficial for me to open a new Roth IRA to put the conversion into to keep things cleaner? Or should I just put the converted amount into my existing Roth IRA? Is there anything else I should be thinking about?

Thanks!

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cheese_breath
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Re: Traditional to Roth conversion

Post by cheese_breath » Thu Sep 13, 2018 2:47 pm

Open a new Roth in case you want to recharacterize later. You can combine both Roths into one after the recharacterization period has passed.
The surest way to know the future is when it becomes the past.

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slow n steady
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Re: Traditional to Roth conversion

Post by slow n steady » Thu Sep 13, 2018 2:54 pm

I thought we weren’t able to recharacterize anymore.

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cheese_breath
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Re: Traditional to Roth conversion

Post by cheese_breath » Thu Sep 13, 2018 3:05 pm

slow n steady wrote:
Thu Sep 13, 2018 2:54 pm
I thought we weren’t able to recharacterize anymore.
Have to take your word for it. I didn't know that.
The surest way to know the future is when it becomes the past.

clydewolf
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Re: Traditional to Roth conversion

Post by clydewolf » Thu Sep 13, 2018 3:18 pm

That is correct. Conversions made since January 1,2018 can not be recharicterized.

The separate Roth for the conversion really not needed. In five years if you need to take a distribution from your Roth IRA, the first money distributed will be Contributions, free from tax and free from early distribution penalty. After all of your contributions are distributed, then Conversion money is distributed. Conversion money is distributed tax free but if less than 5 years from conversion, the 10% early distribution penalty may apply. Note there are several exceptions for the early distribution penalty. Last to be distributed is gains which may be subject to the early distribution penalty and may be subject to tax.

All of your Roth accounts no matter who the custodian is are considered as one Roth IRA.

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slow n steady
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Re: Traditional to Roth conversion

Post by slow n steady » Thu Sep 13, 2018 4:53 pm

clydewolf wrote:
Thu Sep 13, 2018 3:18 pm
That is correct. Conversions made since January 1,2018 can not be recharicterized.

The separate Roth for the conversion really not needed. In five years if you need to take a distribution from your Roth IRA, the first money distributed will be Contributions, free from tax and free from early distribution penalty. After all of your contributions are distributed, then Conversion money is distributed. Conversion money is distributed tax free but if less than 5 years from conversion, the 10% early distribution penalty may apply. Note there are several exceptions for the early distribution penalty. Last to be distributed is gains which may be subject to the early distribution penalty and may be subject to tax.

All of your Roth accounts no matter who the custodian is are considered as one Roth IRA.
Thanks for the clarification. I had forgotten about all accounts being considered as one. I will just convert it into my current Roth IRA. Thanks!

retiredjg
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Re: Traditional to Roth conversion

Post by retiredjg » Thu Sep 13, 2018 4:58 pm

You can use just one account but however you do it, you must have records of how all the money got into Roth IRA and when it got there. Keep these records until your middle 60's.

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slow n steady
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Re: Traditional to Roth conversion

Post by slow n steady » Thu Sep 13, 2018 6:11 pm

retiredjg wrote:
Thu Sep 13, 2018 4:58 pm
You can use just one account but however you do it, you must have records of how all the money got into Roth IRA and when it got there. Keep these records until your middle 60's.
Thanks. I haven't been keeping records up to this point but I guess I should at least be downloading a copy of the year end statement once a year.

retiredjg
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Re: Traditional to Roth conversion

Post by retiredjg » Thu Sep 13, 2018 6:22 pm

slow n steady wrote:
Thu Sep 13, 2018 6:11 pm
retiredjg wrote:
Thu Sep 13, 2018 4:58 pm
You can use just one account but however you do it, you must have records of how all the money got into Roth IRA and when it got there. Keep these records until your middle 60's.
Thanks. I haven't been keeping records up to this point but I guess I should at least be downloading a copy of the year end statement once a year.
Try to reconstruct all the contributions - direct contributions, back door (including how much of the back door contribution was taxed), conversions, etc. You will need this information if you ever hake money out of Roth IRA before age 59.5.

Chip
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Re: Traditional to Roth conversion

Post by Chip » Fri Sep 14, 2018 10:07 am

slow n steady wrote:
Thu Sep 13, 2018 6:11 pm
Thanks. I haven't been keeping records up to this point but I guess I should at least be downloading a copy of the year end statement once a year.
Look on your broker's web site to see if you have access to your prior year Forms 5498. These have records of your contributions and conversions. My broker gives me access to a few years of them.

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