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Author: JLMoran Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75890  
Subject: IRA Contributions/Conversion Date: 3/31/2000 7:00 AM
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I think this is a pretty basic question, but I couldn't find the answer anywhere on the "all about IRA's" series of articles or in an FAQ anywhere.

I have an IRA that I just opened in January with funds rolled over from my old employer's 401(k) plan. There's about $20,000 in the account as of the close of the market yesterday.

My current joint AGI should be in the neighborhood of $96,000 this year. Given this, I have 3 questions.

1) Can I make my usual $2,000 contribution to this IRA? I have no interest in keeping it "pure" for a future rollover.

1a) If I can make contributions, do I have to pay taxes on the rolled over funds? Or is the after-tax contribution simply accounted separately?

2) This is most likely the last year I will have an AGI below the conversion threshold of $100,000. I'm contemplating converting this IRA to a Roth, but then I'm going to be socked with an additional $7,000 or so in taxes due (assuming I stay at a combined Federal and NJ State tax rate of about 33%). If I were to adjust my W-4 withholding, that would amount to an additional $370 per paycheck withheld -- a big pill to swallow, especially when my wife and I are expecting our first child in September.

I can completely eliminate my 401(k) contributions at my present job and that would just about cover the difference (but not quite, since tax would now be withheld from that money), but that seems rather foolish (small "f"). If I can continue making contributions to the IRA as is, then I'd just as soon do that.

Thanks in advance! :-)

P.S. I'm going to also post this on the taxes board, since I'm not sure which is the correct place.
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Author: JLMoran Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20814 of 75890
Subject: Re: IRA Contributions/Conversion Date: 3/31/2000 8:18 AM
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Clarification -- this was a trustee-to-trustee transfer. The check sent to me was made out to the new brokerage house, FBO me.

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Author: SactoFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20819 of 75890
Subject: Re: IRA Contributions/Conversion Date: 3/31/2000 10:40 AM
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I can completely eliminate my 401(k) contributions at my present job and that would just about cover the difference (but not quite, since tax would now be withheld from that money), but that seems rather foolish (small "f"). If I can continue making contributions to the IRA as is, then I'd just as soon do that.

Okay. I would leave your 401(k) largely alone. It represents an additional tax defered investment in your future and you enrolled in it to take advantage of that along with any company match that might be offered.

I would seriously look at your budget, estimate what you CAN afford, and convert only enough of your current IRA to a Roth for the taxes you can afford. Next year you can convert another portion, and so on until you're done.

If you DO decide to stop contributions to your 401(k) to accelerate the rate of your Roth conversion, I would encourage you to still defer enough to receive the maximum company match.

I'm no investment advisor. I'm just that....

Sacto Fool

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