Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Next Thread
Author: rtomase Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121177  
Subject: pre-tax ira questions Date: 11/18/1998 9:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I opened up an IRA a couple of years ago to roll over company contributions (stock) from my 401k acct. so I could dump the stock and use the proceeds to buy other stock.

This year, I opened up a separate Roth IRA and funded it with $2000 cash.

I have some questions:

1. Do I need to keep the pre-tax IRA acct so I can receive the rollovers from the 401K, or can I roll over from the 401k directly to the Roth?

2. What are the tax consequences of rolling over assets from the pre-tax IRA to the Roth IRA?

3. Does an IRA which has always contained pre-tax money change 'type' to after-tax if cash is contributed, or does it not matter?

4. How do you know an IRA is pre-tax or after-tax?

If this would make any difference in the answers - my income will be around $75000 this year with 15% contributed to 401k.

Thanks in advance for any comments.
Print the post Back To Top
Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6387 of 121177
Subject: Re: pre-tax ira questions Date: 11/19/1998 7:02 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
[[I opened up an IRA a couple of years ago to roll over company contributions (stock) from my
401k acct. so I could dump the stock and use the proceeds to buy other stock. ]]

OK...so far so good...

[[ This year, I opened up a separate Roth IRA and funded it with $2000 cash.]]

No problem...

[[ I have some questions:]]

OK...let's see if I have some answers.

[[ 1. Do I need to keep the pre-tax IRA acct so I can receive the rollovers from the 401K, or can I
roll over from the 401k directly to the Roth?]]

You don't necessarily need to "keep" the current IRA account, but you CAN NOT convert directly from a 401k account to a Roth account. There must be an IRA account in there somewhere. But if you really want to close convert your existing IRA account, you could always open up a new one some time in the future when you are looking to convert future 401k funds.

[[ 2. What are the tax consequences of rolling over assets from the pre-tax IRA to the Roth IRA?]]

On that conversion, all of the amount converted will be added to your income, and will be taxed at ordinary rates. It looks like you need some basic instruction in Roth IRAs. You might want to check out my post on the Roth IRA in the Taxes FAQ area. In addition, we discuss the Roth IRA in some detail in The Motley Fool Investment Tax Guide.

[[ 3. Does an IRA which has always contained pre-tax money change 'type' to after-tax if cash is
contributed, or does it not matter?]]

Sorry...but I'm missing the point of this question. Again, you might want to read my post on the Roth IRA for additional information that may answer your question.

[[ 4. How do you know an IRA is pre-tax or after-tax?]]

If you have made any non-deductible IRA contributions, you should have filed IRS Form 8606 with that (and future) tax returns to track your basis in the IRA. If you haven't made any non-deductible contributions, it is unlikely that you have any "basis" in your IRA.

[[ If this would make any difference in the answers - my income will be around $75000 this year with
15% contributed to 401k.]]

Then you would pay a bunch of taxes on your conversion. And you are very close to the $100k AGI limitation. If you are over $100k AGI, you are not allowed to make a Roth IRA conversion.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: rtomase Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6394 of 121177
Subject: Re: pre-tax ira questions Date: 11/20/1998 12:36 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
[[ 4. How do you know an IRA is pre-tax or after-tax?]]

If you have made any non-deductible IRA contributions, you should have filed IRS Form 8606
with that (and future) tax returns to track your basis in the IRA. If you haven't made any
non-deductible contributions, it is unlikely that you have any "basis" in your IRA.

====

When I read the above it scared me at first as I didn't remember filing this form, so I checked my records. I found I did fill out 8606 for tax year 1997, the first year I made a non-deductable contribution. WHEW!!

NOW I understand what the basis is. Also understand how a traditional IRA can contain both pre-tax money (e.g. from a 401K) and after-tax money (non-deductable contributions).

Thanks!!


Print the post Back To Top
Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6404 of 121177
Subject: Re: pre-tax ira questions Date: 11/20/1998 7:22 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
[[When I read the above it scared me at first as I didn't remember filing this form, so I checked my
records. I found I did fill out 8606 for tax year 1997, the first year I made a non-deductable
contribution. WHEW!!

NOW I understand what the basis is. Also understand how a traditional IRA can contain both
pre-tax money (e.g. from a 401K) and after-tax money (non-deductable contributions).]]

Great!!!

Now that you have all of the basis issues figured out, if you need help with the computations, feel free to post those questions here.

TMF Taxes
Roy

Print the post Back To Top
Author: salome Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6413 of 121177
Subject: Re: pre-tax ira questions Date: 11/20/1998 8:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
If you have made any non-deductible IRA contributions, you should have filed IRS Form 8606
with that (and future) tax returns to track your basis in the IRA. If you haven't made any
non-deductible contributions, it is unlikely that you have any "basis" in your IRA.


We have several years of tax returns with no deductible ira but I have corresponding records of having bought an ira. I can't find any copies of Form 8606. I probably forgot to file them. What should I do now? Can a back-dated form be filed? I assume this issue will be important both for conversion to Roth and for payment of taxes when IRA is used if it isn't converted.

Sally

Print the post Back To Top
Author: cotopop Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6419 of 121177
Subject: Re: pre-tax ira questions Date: 11/21/1998 2:57 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Sally,

This is not an uncommon problem but you have a remedy.You are indeed correct stating that this is important for the conversion and payment of taxes.You need to file amended returns for each of the years you had a non-deductible IRA and complete IRS FORM 8606.

The amended 1040 X's need to be done in chronolical order starting with the OLDEST year that you made a non-deductible IRA and didn't file FORM 8606.

Also you may be subject to a $50 penalty for each year that you were rquired to file the 8606 but didn't. My suggestion is to request a waiver due to "reasonable cause".Don't panic as the 8606 form is one of the easier IRS forms to complete.

Print the post Back To Top
Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6426 of 121177
Subject: Re: pre-tax ira questions Date: 11/21/1998 4:29 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
[[We have several years of tax returns with no deductible ira but I have corresponding records of
having bought an ira. I can't find any copies of Form 8606. I probably forgot to file them. What
should I do now? Can a back-dated form be filed? I assume this issue will be important both for
conversion to Roth and for payment of taxes when IRA is used if it isn't converted. ]]

Sally...

I would differ a bit with the prior posts.

First of all, make absolutely sure that your IRA contributions were non-deductible. Then, make sure that the IRA contributions (for the year in question) were absolutely made.

Once you are convinced that you DID make an IRA contribution, and it was not deducted, then you can begin to complete your Form 8606 for the appropriate years.

But...here is where I differ from the prior post. Instead of filing a complete Form 1040X for the tax years in question, I would simply bundle up all of the Form 8606's and mail them on their own. Since there will be do tax changes, I don't believe that a complete 1040X is required.

And, make SURE to keep copies of all of the Form 8606 forms that you mail.

As noted, there is (at least in the law) a potential $50 penalty for each Form 8606 form not originally filed. But I've never seen this penalty enforced...and I doubt that it'll be enforced in your case either.

So there you have it. Hope this helps...
TMF Taxes
Roy

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Next Thread
Advertisement