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Author: ferjen 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 121182  
Subject: Non-Deductible Traditional IRA ?'s Date: 5/17/2012 8:12 PM
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Over the years, our hard work (more my spouse's hard work than mine :-) ) has pushed our income up to a point where we can no longer contribute directly to a Roth IRA. So, begrudgingly, we funded a non-deductible Traditional IRA for each of us for 2012. To my surprise, it looks like we can convert the Traditional IRA's into Roth IRA's.

So, my questions are as follows:

1. We've never had Traditional IRA's before. The $5K sitting in each account we just opened a few weeks ago is it. As I understand it, we can convert those accounts to Roth IRA's with no taxes due because there have been no gains on the money. Is this correct?

2. Can we convert immediately or do we have to wait some prescribed time? Is there any reason we should wait?

Thank you for your help.

ferjen
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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: 116152 of 121182
Subject: Re: Non-Deductible Traditional IRA ?'s Date: 5/17/2012 8:41 PM
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1. We've never had Traditional IRA's before. The $5K sitting in each account we just opened a few weeks ago is it. As I understand it, we can convert those accounts to Roth IRA's with no taxes due because there have been no gains on the money. Is this correct?

With the facts as stated, yes. Just to perform a suspenders and a belt check, the universe of "traditional IRAs" includes SEPs, SIMPLEs, and rollovers from prior employer plans.

Make sure you report the contributions on your 2012 return, Form 8606, Part I (one for each of you). You will report the conversions in Part II of the same forms.

2. Can we convert immediately or do we have to wait some prescribed time? Is there any reason we should wait?

There's no tax law reason you can't do it the same day you make the contribution. I'd make the contribution today and do the conversion tomorrow, after your account shows the contribution, but check with your custodian to see what works for them.

Phil
Rule Your Retirement Home Fool

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