Archive for Conversion

Question regarding a Roth IRA conversion?

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Thursday, September 15th, 2011

My Dad converted a traditional IRA to a Roth IRA at the age of 57 (I believe the government allowed people do this recently). Does he have to wait five years before he can withdraw funds tax free, or will the 59 1/2 age rule take precedence in this case?

Much appreciated.

he's going to have to pay taxes on the conversion first of all, but he will have 2 yrs to pay those taxes – no 10% penalty on teh conversion – not sure about the 5 yr rule – why would he be taking money out of a retirement acct before he turns at least 62 and can start receiving soc sec also? money is not going to last long withdrawing it that early

your dad will have to pay tax on the part of the funds which were transferred to the roth ira in the year he transferred them. He will probably have to pay a 10% penalty on those funds as well since he is only 57. The 591/2 age limit still applies to roth as well as traditional IRA's distributions.

converting a reg IRA to a Roth requires payment of the income tax on that amount
and yes holding period for a Roth is 5 yrs
I believe it states the holding period is 5 yrs, it doesn't qualify 'if' ie. one reaches 59 1/2 before the time period

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Categories : conversion to roth ira
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How are taxes on a Roth IRA conversion calculated?

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Monday, September 5th, 2011

I just recently converted an old IRA rollover account I had into a Roth IRA, in order to take advantage of the new program that allows you to spread out the tax bill for the conversion over the 2010/11 taxes years.

The original IRA was only about $2,000 at the time it was converted to a Roth IRA, so if I were to stop there my tax bill for the conversion would be relatively low (especially if spread out over 2 yrs.)

What I'm wondering is, if I then contributed the max for 2010 (another $5k) – would I be taxed on that as well, for a total of $7,000 in taxes? My first guess would be No, simply because I'm contributing dollars that have already been taxed.

Am I totally off-base here? Any insight would be greatly appreciated!

no if you are fortunate enough to know how much you contributed, you have a basis and the amount of growth since that time would be untaxed during the time you held it
your original contribution was a tax advantage so you know you have to account for that in your calculation of the taxable amount
so you should be able to document the amount that would be included in the taxable amount you are converting, if so, if there is a question about your claim, you have documentation to prove your case

You are not at all off-base. in fact, you are right on target. Your Roth conversion will be taxed for the $2,000 or so you converted. The $5,000 contribution was made using post-tax income and you will not be double-taxed.

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Categories : ira conversion to roth ira
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Roth ira conversion in 2011, new contribution.?

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Sunday, September 4th, 2011

Me and my wife do not qualify for Roth IRA contribution due to income limits. however, we want to contribute to tradition IRA post tax and then roll that amount over to Roth IRA for both 2010 and 2011 before 4/15/2011.

What are the tax implications of this conversion. Is it legal to do it. the contribution of $10,000 will be post tax to traditional IRA.

Yes, you can do that. You would just pay tax on any growth that might occur in the conversion….but that would be slim to none. the preferred method would be to not do the contributions and conversions in the same year. there is no rule against it, but it may be better overall.

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Categories : roth ira conversions
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I have a SEP IRA, no longer current business retirement account, change to a traditional IRA?

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Sunday, September 4th, 2011

I have a SEP IRA from when my business was a proprietorship. In the past year, my business became an LLC and set up a solo 401k, so I am no longer funding the SEP IRA.

Should I somehow recharacterize the SEP IRA in to a traditional IRA? Is this even possible?

Thanks.

My understanding is that, yes, you can ROLLOVER a SEP-IRA into a traditional IRA or some other plans. I also believe you can CONVERT a SEP IRA into a Roth IRA. I think the SEP has to be at least 2 years old, and that you pay taxes on the conversion. There are income limitations on these conversions as well.

I recommend contacting the IRA custodian you'd like to place the SEP funds with and also a good CPA.

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Categories : sep ira
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I want to convert IRA's set up with after tax contributions to a Roth IRA in 2010. Are there Tax implications?

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Saturday, September 3rd, 2011

I have several IRA's that are all funded with after tax contributions and have not been deducted from any tax return. can I convert then in 2010 to a Roth without any penalty or tax payments?

While the non-deductible contributions are not taxed upon conversion, any gains in the IRAs is fully taxable. Your records must support the non-deductible portion of the contributions.

after tax IRA's, aren't they already Roths?

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Categories : roth iras 2010
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Roth IRA Conversion, Tax bracket Jump?

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Sunday, August 21st, 2011

I make 63500 k and I have 39000 in an IRA that I would like to convert it to a Roth. my taxable income was 33056 this year and I will get about a 3% raise. I don't want to have the conversion bump me up to higher tax bracket. How much can I convert?

Call your financial advisor and ask them, I think that would be the most helpful tip.

You'll need to visit with the bank where you want to put the new IRA. The problem is that the Traditional IRA is pre-tax money and the Roth is after-tax money, so you'll have to pay taxes on whatever amount you convert… that means you'll want to probably make estimated tax payments throughout 2007 if you convert much of this.

I seriously doubt that anyone other than a tax advisor can tell you the actual amount you'll want to convert because your individual tax rate will depend on other factors which will affect the tax return.

you can just visit this site to get your doubts clear
theusefulinfo.com/finance/roth.ht…

Or
theusefulinfo.com/finance/compare…

Its very useful

You obviously make enough that you should hire a CPA, rather than taking your chances on incorrect answers in this forum.

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Categories : roth ira conversions
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What's the difference between ROTH IRA and Traditional IRA?

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Thursday, August 11th, 2011

Can I take money out of ROTH IRA anytime I want without paying tax?

Yes Roth IRA's allow withdrawals at anytime up to the total amount that an individual has invested. It also os exempt from any tax or penalty upon wihtdrawal.

If any portion of a Roth IRA is derived from converting from a Traditonal IRA, only the amount that was present before conversion can be withdrawn.

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Categories : roth ira and ira
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As Market Tumbles, Time to Convert Traditional IRA to Roth?

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Wednesday, August 10th, 2011

By Kelly Greene iStockPhoto

There’s one way for people saving for retirement to use the market’s tumble as a force for good: Convert battered assets in your traditional individual retirement account to a Roth IRA.

Roths, you may recall, are retirement accounts in which you invest after-tax dollars and get tax-free withdrawals – and you don’t have to take them on a mandatory schedule, as you do with a traditional IRA. As of last year, there’s no income limit for moving money to a Roth from a traditional IRA or employer-sponsored retirement plan.

The catch is that you would owe income tax on the amount you convert for the year in which you do the conversion. and it’s generally best to use money outside your IRA to pay that tax. So, if you convert investments when they dip in value, you pay tax on a smaller amount – and have the potential for more tax-free growth in the future.

Converting to a Roth can also be a good estate-planning strategy. Although your heirs would have to take distributions from an inherited Roth each year, they don’t have to pay any tax on that income. and the money you use to pay the conversion tax, of course, is out of your future estate as well.

A few things to keep in mind: You can’t cherry-pick any after-tax contributions you’ve made to your traditional IRA over the years to convert. instead, you get credit, proportionately, for after-tax money in your IRA. Here’s an example: You have $250,000 in IRA assets, including $200,000 in a rollover IRA from a 401(k) and $50,000 in another account, including $40,000 in after-tax contributions. that means 16% of a conversion would be tax-free.

Also, a conversion will raise your overall income, which could push you into a higher tax bracket.

Ed Slott, an IRA consultant in Rockville Centre, N.Y., suggests a good conversion strategy in a time of volatility: put each different type of asset in a different Roth account. that way, if any asset class falls significantly in value, you can “recharacterize” that specific type of asset as a traditional IRA.

Keep in mind, though, that there’s waiting period after a recharacterization before you can convert again.

We wrote more about this strategy, along with other moves to take advantage of the downturn, in the Weekend Investor cover story.

What moves are you making with your retirement investments to capitalize on the carnage?

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