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URL:  http://boards.fool.com/so-i-have-no-traditional-ira-accounts-but-i-do-30731521.aspx

Subject:  Re: 55 year old rule Date:  6/12/2013  6:20 PM
Author:  aj485 Number:  25058 of 25242

So I have no traditional IRA accounts (but I do have a small rollover IRA from an old small 401k),

This counts as a 'traditional pre-tax' IRA, too.

You can solve for this few different ways:

- fully convert this account, too (and pay the associated taxes)
- roll this account to your current 401(k), if you are allowed to do so
- use form 8606 to pro-rate your conversions, and pay taxes on just the portion that is 'pre-tax'

If you are really solid on your plan to take a few years off, and therefore, are likely to have several years with lower earnings, you may also just want to contribute to a post-tax IRA now, and wait to convert both the small rollover IRA and the post tax IRAs at the same time, when you aren't working. If you convert when you have a lower income, you can take advantage of lower tax rates (assuming you don't think tax rates will go up significantly between now and then). You will end up paying taxes on any gains on the post tax contributions, in addition to the pre-tax rollover IRA. However, if you can keep your income (including the taxable amount of the conversion) below your current marginal tax bracket, you might end up paying less in taxes. You will need to file form 8606 each year you make after-tax contributions to an IRA.

basically I deposit $11,000 (for married couples 2013) into a traditional IRA

Kind of. The "I" in IRA stands for "Individual". So, it would actually be depositing $5,500 each to 2 individual accounts - one for you and one for your wife.

then immediately convert to a Roth IRA?

Yes, if you have either converted the rollover IRA to a Roth, or moved it to your current 401(k). If not, then you will use Form 8606 to pro-rate taxes between the pre-tax and post-tax amount.

Does this work exactly like a RothIRA, where I can pull out the principle at any time penalty free?

Conversions to a Roth need to 'season' for 5 years before you can pull them out tax-free and penalty-free. See IRS Pub 590.

AJ
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