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URL:  http://boards.fool.com/greetings-cvisick-and-welcome-you-asked-10980618.aspx

Subject:  Re: IRA Qs Date:  6/23/1999  2:41 PM
Author:  TMFPixy Number:  11481 of 78166

Greetings, Cvisick, and welcome. You asked:

<<1. If I were to open a Roth IRA and then learn at tax time that my AGI was too high, what would be the effect on my taxes and my IRA?

My assumption is, but I can't find the answer, that I would have to (be able to) recharcterize the IRA as a conventional IRA.>>


You are correct. As long as the recharacterization to a traditional IRA takes place by April 15 of the year following the year of contribution or conversion to a Roth, there will be no adverse tax consequences to you.

<<2. If my AGI is too high, does it still make sense to open a conventional IRA?

I guess the benefit is that I wouldn't be taxed on gains when I traded through the IRA and the value of the benefit depends on how often I traded and how large the gains or losses were when I traded.>>


Precisely. It depends largely on how and in what you invest. Remember that any growth in a nondeductible traditional IRA will be taxed at ordinary income tax rates. OTOH if you invest in a taxable investment wherein you can achieve long-term capital gains, the tax rate on that growth would be less.



<<3. Changing to Education IRAs, if my AGI is too high, can I make a gift of $500 to each child and have them each establish an Education IRA?>>

No. The gift is not earned compensation for the purposes of making a contribution to an EIRA. However, you may contribute $500 to an EIRA for each child.

<<4. Finally, what don't I know that I should know about tax-effcient investing in my situation? (A small question, I know.)>>

Regardless of your situation you should know as much as you can about the tax impacts of any investment choice you make. That's the only way you can avo