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Author: HomerCompton Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Conversion to a Roth IRA Date: 2/19/1998 10:26 AM
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I am currently looking at converting my trad IRA to a Roth IRA. Vanguard advises me not to mix (commingling) my assests (conversion money and new contributions). They have advised this because they said thats what the IRS said.

I would like to keep it all together and avoid multiple accounts and extra annual fees.

Does anyone know why the IRS is advising this? Is there or will there be any penalty for commingling?

Thank you,
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1863 of 74759
Subject: Re: Conversion to a Roth IRA Date: 2/19/1998 3:56 PM
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Greetings, HomerCompton, and welcome.

<<I am currently looking at converting my trad IRA to a Roth IRA. Vanguard advises me not to mix (commingling) my assests (conversion money and new contributions). They have advised this because they said thats what the IRS said.

I would like to keep it all together and avoid multiple accounts and extra annual fees.

Does anyone know why the IRS is advising this? Is there or will there be any penalty for commingling?>>

There is a technical correction to the law establishing the Roth that's now pending in Congress. It will be retroactive to 1/1/98, and it specifies the order in which money may be removed from a Roth. Normally, you can take money from contributions anytime. If you convert a traditional IRA, you must wait five years. The correction will specify penalties from taking money from the conversion within five years, plus it will say that's the money that comes out of an account first. The order is as follows from first out to last out:

a. Contributions from IRAs converted in 1998 - If taken within five years, there will be a 10% penalty on the amount taken PLUS another 10% penalty for spreading the income tax on the conversion over four years. Total: 20% penalty.
b. Contributions from IRAs converted in 1999 or later - If taken within five years, there will be a 10% penalty on the amount taken.
c. Contributions from any other source - No penalty when withdrawn.

There is no law that says you can't mix conversion money with normal contribution money. BUT - The IRS has strongly recommended that Roth providers not allow this because of the pending correction, and has issued an approved Roth IRA agreement that specifically precludes it. Most Roth providers are following this recommendation. Separate accounts helps keep track of the money in Roth IRAs, and also helps prevent you from making a mistake you will regret.

When the IRS "recommends" something, most Fools listen.

Regards……Pixy



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Author: 4play Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1869 of 74759
Subject: Re: Conversion to a Roth IRA Date: 2/19/1998 7:27 PM
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Scottsdale is allowing me to mix my rolloer funds with new contributions in a single account if I so desire. I chose to have seperate accounts. You never know what the future may hold.
John.


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1871 of 74759
Subject: Re: Conversion to a Roth IRA Date: 2/19/1998 7:36 PM
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John,

<<Scottsdale is allowing me to mix my rolloer funds with new contributions in a single account if I so desire. I chose to have seperate accounts. You never know what the future may hold.>>

A smart move on your part IMO.

Regards.....Pixy

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Author: DownwardSpiral One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1928 of 74759
Subject: Re: Conversion to a Roth IRA Date: 2/23/1998 12:59 PM
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I don't disagree with Pixy's thoughts for normal people, but I ain't just no NORMAL Fool---

I am planning to open an IRA for my minor child who got her first real job in 1997. There are a few reasons why I will try to set up a commingled Roth IRA for her:

1) I want a Roth at her tender age, so everything compounds for 50 years

2) Her tax liability is real low, so a conventional IRA doesn't save many tax dollars

3) I can only open a traditional IRA with 1997 dollars

4) I will have to add 1998 dollars when opening the account to get to $2,000--which is the minimum which most of the no-annual-fee brokers will take to open an account

5) Then, after opening the traditional IRA with 1997 and 1998 after-tax dollars, I will ask to have it converted to a Roth.

6) I will then start contributing to this account for her.

Am I all wet?



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Author: TchrP Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1930 of 74759
Subject: Re: Conversion to a Roth IRA Date: 2/23/1998 1:48 PM
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>> $2,000--which is the minimum which most of the no-annual-fee brokers will take to open an account
--------------------------
If that is a major consideration, it may help to know that Waterhouse waives the account minimum for IRAs.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1934 of 74759
Subject: Re: Conversion to a Roth IRA Date: 2/23/1998 2:35 PM
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DownwardSpiral,

<<I don't disagree with Pixy's thoughts for normal people, but I ain't just no NORMAL Fool---

I am planning to open an IRA for my minor child who got her first real job in 1997. There are a few reasons why I will try to set up a commingled Roth IRA for her:

1) I want a Roth at her tender age, so everything compounds for 50 years

2) Her tax liability is real low, so a conventional IRA doesn't save many tax dollars

3) I can only open a traditional IRA with 1997 dollars

4) I will have to add 1998 dollars when opening the account to get to $2,000--which is the minimum which most of the no-annual-fee brokers will take to open an account

5) Then, after opening the traditional IRA with 1997 and 1998 after-tax dollars, I will ask to have it converted to a Roth.

6) I will then start contributing to this account for her.>>

As long as the money isn't touched for five tax years, it all makes perfect sense to me. Also, it hinges on your provider permitting the comingling of those monies. The only IRS-approved agreements (put out by the IRS) won't permit it as of right now. That may be a stumbling block to your plan because most providers will go along with the IRS form.

Regards…..Pixy



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