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Author: soccerboy One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Roth IRA conversion Date: 9/25/1998 4:36 PM
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In 1986 my wife set up a traditional IRA with a
roll over from a profit sharing plan. She was changing employers at the time. We have made several non-deductble contrbutions over the years. We want to convert to a Roth IRA but I read several months ago that there might be some tax problems since the
original amount came from a profit sharing plan. Does
antone know if there are any special rules for this
scenario?
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Author: GeekFoolBoy One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5641 of 74759
Subject: Re: Roth IRA conversion Date: 9/25/1998 4:50 PM
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<<We want to convert to a Roth IRA but I read several months ago that there might be some tax problems since the original amount came from a profit sharing plan. Does antone know if there are any special rules for this scenario? >>

I'm sure Pixy will jump with all the gory (and incredibly accurate) details, but in my case, there was nothing special about it.

I had both a 401(k) and a profit sharing plan, both of which were qualified plans, so rolling them into an IRA and subsequently converting that to a Roth was a no-brainer. I'm not sure if non-qualified profit sharing plans exist (I've got a hunch that they do), so I suppose your first task would be to find out exactly what kind of profit sharing plan your wife had.

For further enlightenment, I refer you to the resident expert, Pixy. :-)

-GeekFoolBoy

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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: 5659 of 74759
Subject: Re: Roth IRA conversion Date: 9/26/1998 11:06 AM
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Greetings, Soccerboy, and welcome. You ask:

In 1986 my wife set up a traditional IRA with a roll over from a profit sharing plan. She was changing employers at the time. We have made several non-deductble contrbutions over the years. We want to convert to a Roth IRA but I read several months ago that there might be some tax problems since the original amount came from a profit sharing plan. Does antone know if there are any special rules for this scenario?

Obviously, the money came from a qualified retirement plan or the rollover would not have been allowed. The nondeductible annual IRA contributions to that IRA since the rollover merely preclude that money from being transferred into a future employer's qualified retirement plan. They have no impact on her ability to convert that IRA into a Roth IRA, nor will they pose a tax problem to you during the conversion. She may convert that IRA to a Roth. All previously untaxed money in that IRA must then be declared as income and taxed. In essence, that declarable income is the net of the market value on the day of the conversion less the nondeductible contributions she made since opening that IRA. The income may be declared entirely in 1998 or equally as one-fourth of the amount in 1998, 1999, 2000 and 2001.

Regards…..Pixy


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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: 5660 of 74759
Subject: Re: Roth IRA conversion Date: 9/26/1998 11:07 AM
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GeekFoolBoy writes:

I'm not sure if non-qualified profit sharing plans exist (I've got a hunch that they do), so I suppose your first task would be to find out exactly what kind of profit sharing plan your wife had.

Yep, they do. However, they may never be rolled to an IRA after leaving the job. Instead, the money must be taken and taxed at that time.

Regards….Pixy



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