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Author: galicia Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121323  
Subject: Commingling assets in a Roth IRA Date: 8/7/1998 6:16 PM
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Hi, all.

A couple of months ago, we converted my wife's traditional IRA to a Roth IRA. We are planning on adding another $2000 as this year's contribution. However, a customer service representative from Vanguard, (where the account is), told us that we should open a separate account for this contribution. She was very adamant against commingling the assets, but, unfortunately, she wasn't able to explain why. Now, it seems to me that, (if we don't take any money out until my wife is 59 ½, over 25 years from now), it would not make any difference whether the money was converted from another IRA or deposited there outright, since all contributions would have been taxed. If that is the case, I don't see the need to pay twice the amount of account fees for this period of time. Am I missing something?

Thanks in advance for your comments.

galicia
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Author: DarrellK One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4765 of 121323
Subject: Re: Commingling assets in a Roth IRA Date: 8/7/1998 9:44 PM
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galicia writes:
---
A couple of months ago, we converted my wife's traditional IRA to a Roth IRA. We are planning on adding another $2000 as this year's contribution. However, a customer service representative from Vanguard, (where the account is), told us that we should open a separate account for this contribution. [...]
---

With the new technical corrections, there is no longer any need to separate conversion assets from contributions. However, since this bill was passed very recently, IRA custodians haven't all caught up yet.

I did the same thing a couple of weeks ago. The Vanguard representative said I couldn't make a contribution to the account over the phone, but if I sent them a letter stating what contribution I wanted to make and saying that I understand that I'm commingling assets, that would be fine. I did that, and they accepted it.

I'd suggest sending them a letter like that. If you'd like a copy of my letter, drop me a line at dkindred@cmu.edu.

I'm hoping they'll have this process smoothed out in a couple of months. Good luck.

- Darrell

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Author: KATinChicagoland Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4804 of 121323
Subject: Re: Commingling assets in a Roth IRA Date: 8/10/1998 1:28 PM
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As Darrell points out, there's no need to keep your rollover contributions in a separate Roth IRA from your annual (non-rollover) contributions. There are added details concerning the forms involved on a page of my web site specifically devoted to this issue:

Annual Contribution to Rollover Roth IRA
http://www.fairmark.com/rothira/combine.htm

Kaye Thomas, author
Fairmark Press Tax Guide for Investors
http://www.fairmark.com

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4904 of 121323
Subject: Re: Commingling assets in a Roth IRA Date: 8/16/1998 11:44 PM
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A couple of months ago, we converted my wife's traditional IRA to a Roth IRA. We are planning
on adding another $2000 as this year's contribution. However, a customer service representative
from Vanguard, (where the account is), told us that we should open a separate account for this
contribution. She was very adamant against commingling the assets, but, unfortunately, she wasn't
able to explain why. ]]

As both DarrellK and KAT pointed out, with the new technical corrections bill, there is no longer any reason to separate conversion and contributions accounts. KAT discusses this issue in greater detail at his web site. I also discuss it in a recent FAQ that you can find in the Taxes FAQ area.

TMF Taxes
Roy

SPECIAL NOTE: Remember that this response is not the "last word" on your situation. It is really only a starting point. Make sure to review the "Read This First" post
(http://www.fool.com/School/Taxes/TaxesDisclaimer.htm) for additional information. In addition, many of your questions may already be referenced in the Taxes Frequently Asked Questions area. In order to visit the Taxes FAQ area, go to the Fool's Money area (http://www.fool.com/money.htm) and check out "Tax FAQs" in the list box, OR you can jump directly to the Taxes FAQ area (http://www.fool.com/school/taxes/taxes.htm). Additionally, if any references were made to the IRS Web Site, you can get there by pointing your web browser to (http://www.irs.ustreas.gov).


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Author: ChundoHadASnack Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4961 of 121323
Subject: Re: Commingling assets in a Roth IRA Date: 8/18/1998 4:58 PM
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A couple of months ago, we converted my wife's traditional IRA to a Roth IRA. We are planning on adding another $2000 as this year's contribution. However, a customer service representative from Vanguard, (where the account is), told us that we should open a separate account for this contribution. She was very adamant against commingling the assets, but, unfortunately, she wasn't able to explain why.

Since I won't be 59 1/2 for about 38 more years and the amount in my current IRA is pretty small, I had the same question. Here is the reply I received from the Vanguard rep. as to why they encourage separate accounts:

There is no difference in tax treatment if the conversion assets are held for five years. However, if you choose to mix contributory and converted
assets you will have to keep an exact track of what assets you have contributed, what assets you have converted, and the respective earnings of each. The tax treatment of conversion assets and of contributory assets prior to the five year threshold differ. Vanguard urges are clients to maintain separate accounts to simplify record keeping. However, the differences in tax treatment end after the initial five year period. If you do not foresee a withdrawal within the first five years, you may want to combine the two, and avoid the possibility of higher fees.

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Author: KATinChicagoland Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4962 of 121323
Subject: Re: Commingling assets in a Roth IRA Date: 8/18/1998 6:01 PM
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The explanation from Vanguard would have made sense under an earlier, proposed version of the law, but is incorrect in connection with the Roth IRA technical corrections as actually enacted. Under the new law, you'll have the same record keeping needs, and the same tax consequences, regardless of whether you use separate accounts for rollovers and annual (non-rollover) contributions. In particular, there's no need to track the earnings of rollovers and other contributions separately. You need to know the dollar amount of the rollover, and the dollar amount of the other contributions -- and you need that information whether your money is in two Roth IRAs or in one.

KAT

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Author: ChundoHadASnack Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4967 of 121323
Subject: Re: Commingling assets in a Roth IRA Date: 8/19/1998 12:36 PM
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I got my conversion kit yesterday from Vanguard, and they have a checkbox on the application to indicate whether you want contributions to be in the same IRA or a separate IRA, so it looks like they are getting things together; I just had a slightly uninformed representative.

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