The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Regular IRA xfer to Roth IRA||Date: 9/8/1997 9:45 AM|
|Author: TMFTaxes||Number: 322 of 121316|
<<My question is: Since I've already paid taxes on my IRA contributions, can I
just declare them to be Roth IRAs on January 1, 1998 with no tax consequences?>>
Not a chance, Vince. You must go through the procedures to "rollover" the IRA into a qualified Roth-IRA in order to have a Roth-IRA.
Remember that in your current IRA, you have earnings that have been able to accumulate tax deferred. So when you make the rollover to the Roth IRA, you'll end up paying tax on those earnings. And if you do all of the right things in the Roth IRA, any future earnings will be tax FREE (as opposed to tax deferred).
If you simply retain your current IRA, the future earnings (not necessarily the contributions...but the earnings) will be subject to tax. No way that you can make a non-deductible IRA "tax free" in the future. Only the Roth IRA will allow that.
So to get Roth IRA status, you need to make the rollover, and pay the tax on the earnings.
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