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Author: RoadScholar5 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121335  
Subject: IRA Conversion Date: 5/6/2011 7:04 AM
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I am converting a Traditional IRA to a Roth IRA in 2011.

At the same time, in 2011, I am trying to consolidate multiple accounts and streamline my holdings.

I have read that one needs to be cautious in making other conversions in the same tax year.

I tried to read the IRS Pub and couldn't make my way through it.

Can anyone recommend a basic tutorial on the tax implications of IRA conversions?

Thank you, RS
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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113359 of 121335
Subject: Re: IRA Conversion Date: 5/6/2011 11:51 AM
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I do not know of a tutorial.

Partial conversions are allowed. It is your decision on how much to convert in any one year.

Have you made after-tax contributions to your Traditional IRA? If you have, then rolling a 401K/403B to an IRA could dilute the tax basis resulting in more taxable income on conversions.

The taxable amount of the conversion is added to your income. It is taxed as regular income.

Non-trustee-to-trustee rollovers are restricted to one per account per year. Trustee-to-trustee rollovers do not have the same restriction, but the best of plans can be undone by incompetent service reps. You are planning on consolidating accounts. It is best to plan on rolling accounts into the destination account, rather than into an intermediate account(s) then merging/moving the intermediate accounts.

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Author: fullofcarp Big red star, 1000 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113364 of 121335
Subject: Re: IRA Conversion Date: 5/6/2011 2:13 PM
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vkg,

Either I don't understand your answer or else I wasn't precise enough in my question. ;-)

I previously had a single traditional IRA (for myself) and a single Roth IRA (also for myself). (I also have a 403b through my job, but I assume that's not relevant to the discussion. FYI, I max out the amount my company matches, but not the max potential contribution.)

The traditional IRA contained only pre-tax money and the Roth only taxed money as deposits. I converted/rolled over the entire amount from the traditional IRA into the Roth in April 2010, and paid taxes on that amount (via including the transferred amount as regular income) when I did my 2010 taxes two months ago. During the year 2010, I made no other IRA contributions for the year (but as I mentioned above, I made 403b contributions). Also, I did not convert or do anything unusual with the 403b during the year other than my regular contributions.

My question is whether the income restrictions on Roth contributions pertain to traditional-IRA to Roth-IRA conversions. The combination of my investing gains and the amount of the conversion itself pushed me over the limit for IRA contributions, which is why I didn't make any contributions for last year. (And I used 8606 to make it a 1-year payment; I didn't opt for the one-time 2-year tax effect.)

And FYI, I'm not looking for a tutorial, just a pointer to the regulations that unambiguously explain the guidelines. For example, I read the following one-liner under "Converting From Any Traditional IRA Into a Roth IRA" in pub 590:
Starting in 2010, the $100,000 modified AGI limit and the filing status requirements for converting a traditional IRA to a Roth IRA have been eliminated.
but I'm not 100% certain if that means that this had been an additional restriction on conversions that no longer holds or if it was the only restriction, and so there are no longer any restrictions.

Bill

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113366 of 121335
Subject: Re: IRA Conversion Date: 5/6/2011 2:59 PM
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My question is whether the income restrictions on Roth contributions pertain to traditional-IRA to Roth-IRA conversions.

I didn't understand the question.

but I'm not 100% certain if that means that this had been an additional restriction on conversions that no longer holds or if it was the only restriction, and so there are no longer any restrictions.

The income limit for conversions has been removed. The previous phaseout limits were based on filing status and income, which is the reason for the confusing statement.

The combination of my investing gains and the amount of the conversion itself pushed me over the limit for IRA contributions, which is why I didn't make any contributions for last year.

but you can make non-deductible contributions to TIRA, then convert the amount to a ROTH. As long as you don't have other balances in TIRAs, the full amount of the taxable contribution applies as the cost basis for the rollover.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113367 of 121335
Subject: Re: IRA Conversion Date: 5/6/2011 3:21 PM
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My question is whether the income restrictions on Roth contributions pertain to traditional-IRA to Roth-IRA conversions.

That answer is no. Contributions are separate from conversions. There used to be two separate income limits. One to make Roth contributions, and one to do Roth conversions. As already mentioned, the Roth conversion income limit has been lifted, meaning that there is only one income limit, and that's for Roth contributions, not Roth conversions.

And FYI, I'm not looking for a tutorial, just a pointer to the regulations that unambiguously explain the guidelines.

Well, since the rules were lifted, they don't exist in IRS Pub 590 anymore. However, I can point you to an older version of IRS Pub 590 (from 2008): http://www.irs.gov/pub/irs-prior/p590--2008.pdf On page 29, the restriction is spelled out:

You can convert amounts from a traditional IRA into a Roth IRA if, for the tax year you mske the withdrawal from the traditional IRA, both of the following requirements are met.

· Your modified AGI for Roth IRA purposes (see Modified AGI in Chapter 2) is not more than $100,000
· You are not a married individual filing a separate return.


If you look for that rule in the 2010 Pub 590, it's not in there, because the restriction on income for conversions has been lifted.

And it's separate from the income limits for a Roth, which in the 2008 Pub 590 start on page 61 in the "How Much Can Be Contributed" section, and are also given in the 2010 Pub 590 for the 2010 tax year.

AJ

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Author: fullofcarp Big red star, 1000 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113368 of 121335
Subject: Re: IRA Conversion Date: 5/6/2011 5:34 PM
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vkg and AJ,

thanks a lot for that info, it really helps. Now I can go back to relaxing about that and merely wondering whether I've handled 6781 properly regarding straddles.

Bill

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113369 of 121335
Subject: Re: IRA Conversion Date: 5/6/2011 6:14 PM
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The combination of my investing gains and the amount of the conversion itself pushed me over the limit for IRA contributions, which is why I didn't make any contributions for last year.

There is no income limit for IRA contributions. There's an income limit for Roth IRA contributions. There's an income-based phaseout range for deductibility of traditional IRA contributions if you or your spouse are covered by a retirement plan at work. But anyone under 70 1/2 with taxable compensation (or with a spouse with taxable compensation) can make an IRA contribution of some sort, even if it's a nondeductible traditional IRA contribution.

If I read your narrative correctly you currently have nothing in any traditional IRA account. Thus, as vkg pointed out, you could make a 2011 nondeductible traditional IRA contribution and immediately convert it to Roth with zero tax consequence.

Phil
Rule Your Retirement Home Fool

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113396 of 121335
Subject: Re: IRA Conversion Date: 5/9/2011 7:43 PM
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TMFPMarti writes (in part):

But anyone under 70 1/2 with taxable compensation (or with a spouse with taxable compensation) can make an IRA contribution of some sort, even if it's a nondeductible traditional IRA contribution.

I reply:

To change the subject slightly and as a matter of purely intellectual curiosity, at least for another couple of decades, does the restriction kick in on the day the taxpayer turns 70.5 or for any contribution made for the year of the relevant half-birthday?

In other words, I will turn 70.5 on January 21 in plenty-nine years from now. If I have sufficient taxable compensation, can I load up my IRA in that year as long as I get it done by January 20? --Bob

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113397 of 121335
Subject: Re: IRA Conversion Date: 5/9/2011 7:52 PM
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If I have sufficient taxable compensation, can I load up my IRA in that year as long as I get it done by January 20? --Bob

It is from the year you turn 70 1/2, but ROTH IRA contributions are still allowed.

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113398 of 121335
Subject: Re: IRA Conversion Date: 5/9/2011 9:57 PM
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In other words, I will turn 70.5 on January 21 in plenty-nine years from now. If I have sufficient taxable compensation, can I load up my IRA in that year as long as I get it done by January 20? --Bob

You cannot make any contribution to a traditional IRA in the year in which you turn 70.5.

Ira

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