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Author: foolanders Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Convert I.R.ANNUITY? Date: 1/27/1998 4:13 PM
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On 4/1/85, my wife bought a $2,000 Individual Retirement ANNUITY from her good friend who worked for Minnesota Mutual. No further contributions have been made. Yesterday, we received her annual statement showing the account had grown from $4,382.51 to $4,592.87 during 1997--a whopping 4.8% annual return. Can we roll this thing into her just-created Roth at Ameritrade? Or into a separate Roth with Vanguard where she has her 403b? I assume we'll have to pay tax on the $2,592.87 gain, right? Any ideas would be appreciated. Thanks.
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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: 1506 of 75381
Subject: Re: Convert I.R.ANNUITY? Date: 1/27/1998 6:25 PM
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Foolanders,

<<On 4/1/85, my wife bought a $2,000 Individual Retirement ANNUITY from her good friend who worked for Minnesota Mutual. No further contributions have been made. Yesterday, we received her annual statement showing the account had grown from $4,382.51 to $4,592.87 during 1997--a whopping 4.8% annual return. Can we roll this thing into her just-created Roth at Ameritrade? Or into a separate Roth with Vanguard where she has her 403b? I assume we'll have to pay tax on the $2,592.87 gain, right? Any ideas would be appreciated. Thanks.>>

If it's in an IRA and isn't just a regular annuity she bought from the agent, then the answer is yes - but not to the Roth at Ameritrade unless that, too, came from a converted IRA. Converted IRA must be kept separate from contributory Roth IRA and must be kept separate by the year of conversion as well. That's not law yet, but it will be as soon as the technical corrections get passed. There's no "if it gets passed." It will. And it will be retroactive to Jan 1, 1998, for this provision.

Her basis is $2K, so on conversion she would have to recognize at least that $2,592.87 as income. One-fourth would be reported on your 1998 return, and one-fourth would be reported in each succeeding year through 2001. It would be taxed at whatever rate you will be in for those years.

Regards…..Pixy


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