I have several questions I can't seem to get a handle on. Looking for some help. First I will give the details. I have a traditional IRA with about $7k in it and I have a 401k from a previous employer with about $12k. In addition I have a 401k with my current employer. I am 35 and married filed jointly with AGI of approx $90k joint, will likely go over $100k in 2001, possibly in 2000 depending on commission. OK, now that I have that off my chest....

I want to roll the my old employers 401k into a Roth IRA (I think this may be best but am open to counter viewpoints). I understand that it must first go into a traditional or conduit IRA.

Can I use my existing IRA or does that create problems with the money already in there?

What will be the tax implications of transfering the 12k from older 401k into a Roth IRA? ie. approx how much will I need to pay?

What happens if I convert it to a Roth and our AGI goes over $100k in 2000? (from what I understood, the AGI to open a Roth was under $100k?)

Thanks for reading and offering your opinions to a fool who is trying.

Greetings, TJScanlon, and welcome. You wrote:

<<I have several questions I can't seem to get a handle on. Looking for some help. First I will give the details. I have a traditional IRA with about $7k in it and I have a 401k from a previous employer with about $12k. In addition I have a 401k with my current employer. I am 35 and married filed jointly with AGI of approx $90k joint, will likely go over $100k in 2001, possibly in 2000 depending on commission. OK, now that I have that off my chest....

I want to roll the my old employers 401k into a Roth IRA (I think this may be best but am open to counter viewpoints). I understand that it must first go into a traditional or conduit IRA.

Can I use my existing IRA or does that create problems with the money already in there?>>

Yes, you may use your existing IRA for that purpose. However, when the 401k money reaches that IRA, then it may never again be transferred to a new employer's 401k plan. That assumes the money now in your traditional IRA came from annual contributions plus earnings and NOT from another old employer's 401k plan. Whether you should convert or not really depends on your tax bracket today versus that in retirement, how you will pay the income taxes due on the conversion, how long the money may stay in the Roth, and the size of coupled with your desires for your estate. To get an idea of what you should look at in making this decision, see my analysis in post 1567 on this board at http://boards.fool.com/Message.asp?id=1040013000441002&sort=postdate. Then run some numbers based on your situation to determine whether such an action will work for you.

<<What will be the tax implications of transfering the 12k from older 401k into a Roth IRA? ie. approx how much will I need to pay?>>

You will have to pay additional ordinary income taxes based on the increase that $12K causes in your taxable income. Only you know your tax situation to determine all the exemptions and deductions you use to arrive at taxable income. If you wish to determine the actual amount of taxes you must pay, then you should run a projected tax return for yourself. Otherwise, based on your stated potential income and assuming you don't go much beyond the $100K gross income you project, you can just assume the extra addition of the 401k money will cause an approximate federal income tax of 28% on the amount you're converting to a Roth. Your state may have additional income taxes as well.


<<What happens if I convert it to a Roth and our AGI goes over $100k in 2000? (from what I understood, the AGI to open a Roth was under $100k?)>>

If you make the conversion and later see that you will exceed the $100K AGI limit for doing so, you may recharacterize that conversion as a rollover contribution to a traditional IRA to avoid any income tax problem. The details are covered in IRS Publication 590 (Individual Retirement Arrangements) available at http://www.irs.ustreas.gov/prod/forms_pubs/index.html. The recharacterization must occur no later than the date you must file your return to include extensions. That means you have until October 15, 2001 to recharacterize a conversion you make in 2000.

Regards..Pixy

Can I use my existing IRA or does that create problems with the money already in there?

No problem, mon. But your IRA custodian may want you to keep the 401k money in a separate account because that money is eligible for transfer into a future employer's 401k. If you are going to complete the transfer into the Roth, it's moot and the existing IRA and 401k monies can be co-mingled.

What will be the tax implications of transfering the 12k from older 401k into a Roth IRA? ie. approx how much will I need to pay?

$12K x your marginal tax rates (federal and state)
The amount taxed is the amount converted from the conduit IRA to the Roth, not the amount transferred from the 401K to the conduit IRA.

What happens if I convert it to a Roth and our AGI goes over $100k in 2000? (from what I understood, the AGI to open a Roth was under $100k?)

The AGI limitation of $100K is on CONVERSIONS to a Roth. CONTRIBUTIONS ($2K per spouse) can be made up to AGI of $150K (phased out at $160K). If you've rolled your 401k into a conduit IRA and then into a Roth and later find your AGI to be >$100K, simply recharacterize (put back) the conversion amount ($12K) into the conduit (regular) IRA; any contributed amounts in the Roth can stay.

"Can I use my existing IRA or does that create problems with the money already in there?"

Yes. If you do, you cannot subsequently roll the money into a new employer's 401k. If this bothers you, you can open a separate (conduit) IRA.

"What will be the tax implications of transfering the 12k from older 401k into a Roth IRA? ie. approx how much will I need to pay?"

Assuming the money already there was deductible contribution, the whole transfer would be taxed as regular income at your rate.

"What happens if I convert it to a Roth and our AGI goes over $100k in 2000? (from what I understood, the AGI to open a Roth was under $100k?)"

You'd have to "recharacterize" back to a regular IRA.
With a fee from the custodian, no doubt. Perhaps you'd like to wait until later in the year before making the switch, when you have a better handle on whether you will be eligible this year for a Roth.

Best wishes, Chris