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Author: HAJILE Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75802  
Subject: I'm confused... Date: 4/6/1998 9:01 PM
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Hello everyone!

My name is Hajile and I am confused new Fool. I've actually been "lurking" around The Fool for quite some time, reading and learning, but this is only my second post...and now it's time to get down to business!

I've been trying to understand how the average Fool goes about setting up an IRA, but I get flummoxed when I come to the Roth/non-Roth part and all the details relating to rollover, etc... Maybe someone out there can help me, in simple terms. (Note to frustrated readers: I have been scanning through the past messages, reading the Tax Q&A on the website and reading books, etc...but sometimes, there's too much information! (Have you tried typing "IRA" into the Fool search engine?) I want to get it all just right, call me silly!

Here's what I think I understand so far:

1) I can open a traditional (non-Roth) IRA before April 15, with a contribution up to $2K (for 1997). I can make this a non-deductable contribution if I don't want to pay tax on the rollover (scheduled for 1998, see #2 below)
2) I can add up to $2K after April 15 which would count as my 1998 contribution. I also think I can make this a non-deductable contribution and then rollover the whole enchilada into a Roth, which would mean I am done for that year ('98): I've made my $2K contribution, rolled into into a Roth IRA and I'm done. (I guess I would also have to pay taxes on the increase of the value of the IRA, but not the contributions, as long as they were non-deductable.)

Now, questions abound... can I make a contribution into that same Roth IRA after April 15, 1999? Do I have to open another IRA in order to make contributions for the next 5 years? I read about a "Five-Tax Year Rule" and a "Rollover Trap" on the Tax Q&A section of the Fool's School...anyone??? Waterhouse, (and all others I've called), is telling me I have to open two accounts, one for the Roth rollover and one for contributions.

Ok, after seeing the length of this post so far, I will try it from another angle in the intrest of brevity:

Is there any way I can contribute $2K for 1997 and then $2K for 1998, roll it into a Roth and then make contributions yearly, as opposed to having 2 accounts and then rolling over each contribution? Maybe you can see that my goal is to be both invested as fully as possible and also not to have multiple commissions (multiple accounts). I'm sorry if I've bored anyone, but I'm excited about posting!! Keep up the great work! I love reading your Foolishness!

To Freedom!

Hajile

p.s. - I'm also aware that I may be totally wrong about what I think I know, so don't worry about hurting my feelings...
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Author: gdc45 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2659 of 75802
Subject: Re: I'm confused... Date: 4/6/1998 11:14 PM
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Hey, Hajile;

< 1) I can open a traditional (non-Roth) IRA before April 15, with a contribution up to $2K (for
1997). I can make this a non-deductable contribution if I don't want to pay tax on the rollover
(scheduled for 1998, see #2 below)> correctamundo

2) I can add up to $2K after April 15 which would count as my 1998 contribution.> You don't have too wait until after APR 15, you can contribute anytime after Jan1!

<I also think I can make this a non-deductablecontribution and then rollover the whole enchilada into a Roth, which would mean I am done for that year ('98): I've made my $2K contribution, rolled into into a Roth IRA and I'm done. (I guess I would also have to pay taxes on the increase of the value of the IRA, but not the contributions, as long as they were non-deductable.)

Now, questions abound... can I make a contribution into that same Roth IRA after April 15, 1999?
Do I have to open another IRA in order to make contributions for the next 5 years? I read abo Tax Q&A section of the Fool's
School...anyone??? Waterhouse, (and all others I've called), is telling me I have to open two
accounts, one for the Roth rollover and one for contributions. > KAT's Fairmark website says that the technical correction MIGHT alleviate the necessity of several accounts...but that's not yet law. Thus, IRA custodians must advise you using current statutes. That's my $.02...GDC

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Author: orangeblood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2660 of 75802
Subject: Re: I'm confused... Date: 4/6/1998 11:16 PM
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>>>>
To Freedom!

Hajile<<<<<

Modeerf Ot, Elijah!

Sdrager,

doolbegnaro <VBSEG>


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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: 2666 of 75802
Subject: Re: I'm confused... Date: 4/7/1998 8:11 AM
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Greetings, Hajile, and welcome.

<<Here's what I think I understand so far:

1) I can open a traditional (non-Roth) IRA before April 15, with a contribution up to $2K (for 1997). I can make this a non-deductable contribution if I don't want to pay tax on the rollover (scheduled for 1998, see #2 below)
2) I can add up to $2K after April 15 which would count as my 1998 contribution. I also think I can make this a non-deductable contribution and then rollover the whole enchilada into a Roth, which would mean I am done for that year ('98): I've made my $2K contribution, rolled into into a Roth IRA and I'm done. (I guess I would also have to pay taxes on the increase of the value of the IRA, but not the contributions, as long as they were non-deductable.)

Now, questions abound... can I make a contribution into that same Roth IRA after April 15, 1999? Do I have to open another IRA in order to make contributions for the next 5 years? I read about a "Five-Tax Year Rule" and a "Rollover Trap" on the Tax Q&A section of the Fool's School...anyone??? Waterhouse, (and all others I've called), is telling me I have to open two accounts, one for the Roth rollover and one for contributions.

Ok, after seeing the length of this post so far, I will try it from another angle in the intrest of brevity:

Is there any way I can contribute $2K for 1997 and then $2K for 1998, roll it into a Roth and then make contributions yearly, as opposed to having 2 accounts and then rolling over each contribution? Maybe you can see that my goal is to be both invested as fully as possible and also not to have multiple commissions (multiple accounts).

p.s. - I'm also aware that I may be totally wrong about what I think I know, so don't worry about hurting my feelings...>>

Seems to me you have a fairly good grasp of the ins and outs of the Roth IRA to include conversions and contributions. Under existing law there is no requirement that separate accounts be maintained for conversion and contributory Roth IRA. However, based on an IRS recommendation many Roth providers require exactly that. The reason lies in the way a pending House technical correction to Roth law prescribed how money comes out of a combined account. That correction said it comes first from any conversion made in 1998, next from conversions made in later years, and last from annual contributions. Conversions must sit in a Roth for five tax-years before they can be withdrawn penalty-free.

A Senate version of the technical correction will change that order and make it totally unnecessary to maintain separate accounts to observe the 5-year conversion withdrawal rule. When - or if - that version is enacted you won't have to worry about keeping two or more Roth accounts. Chances seem good the Senate's version of the technical correction is the one that will pass.

Regards……Pixy



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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2668 of 75802
Subject: Re: I'm confused... Date: 4/7/1998 8:45 AM
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<>>>>
To Freedom!

Hajile<<<<<

Modeerf Ot, Elijah!

Sdrager,

doolbegnaro <VBSEG>>

Speak American, not African! This is for Americans Only!

;-) :-) 8-)

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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: 2669 of 75802
Subject: Re: I'm confused... Date: 4/7/1998 8:45 AM
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<< A Senate version of the technical correction will change that order and make it totally unnecessary to maintain separate accounts to observe the 5-year conversion withdrawal rule. When - or if - that version is enacted you won't have to worry about keeping two or more Roth accounts. Chances seem good the Senate's version of the technical correction is the one that will pass.>>

I guess that's a little too brief when I look at it again.

The Senate vesrsion combines all Roth accounts and specifies withdrawal precendence as first from annual contributions, next from the earliest traditional IRA conversion dollars, and last from earnings. That's true regardless of which account is used for the withdrawal. IMHO, that makes for a nice change.

Regards…..Pixy


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Author: tc001 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2672 of 75802
Subject: Re: I'm confused... Date: 4/7/1998 8:07 PM
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< 2) I can add up to $2K after April 15 which would count as my 1998 contribution. I also think I can make this a non-deductable contribution and then rollover the whole enchilada into a Roth, which would mean I am done for that year ('98)>

Or, just make the contribution for 1998 directly to the Roth. There's no need to run it through the traditional IRA first and then roll it over.

Also, an IRA contribution can be made at any time from January 1st of the current year until April 15th of the following year. In other words, there is an overlapping period each year from January 1st until April 15th when the contribution can go *either* into the current year *or* into the preceding year (or both years can be funded at the same time). You do not have to wait until after April 15th to fund a current year's IRA.

<I guess I would also have to pay taxes on the increase of the value of the IRA, but not the contributions, as long as they were non-deductable.>

That is correct.

<Now, questions abound... can I make a contribution into that same Roth IRA after April 15, 1999?>

Yes. Pixy answered this part. I just want to re-emphasize that it is not necessary to wait until after April 15th to fund the current year IRA for Roth or traditional. Since you said one of your goals was to be as fully invested as possible then this should encourage you to fund the IRA as soon as it's convenient rather than waiting until after April 15th every year.

<I have been scanning through the past messages, reading the Tax Q&A on the website and reading books,
etc...but sometimes, there's too much information!>

There's no problem ever asking a question when you've done your homework. Our frustration comes only when people post messages without even trying to look for the answer or understand the basics. You've covered both those points quite well.

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Author: HAJILE Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2698 of 75802
Subject: Re: I'm confused... Date: 4/8/1998 8:43 PM
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Many thanks to all who responded!!

Hajile

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