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Author: oneplez Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121181  
Subject: Roth IRA roll-over Date: 11/15/1997 9:17 PM
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Had another thought about the Roth IRA scams!

If, you roll-over a current IRA to a Roth type, you must pay taxes on the rolled-over monies, because this now becomes a distribution.

If you roll-over in 1998 you can distribute your tax burden over a four year period.

If you take monies from the Roth roll-over, to pay the taxes, the monies are taxed as ordinary income for the year of the roll-over.

If you take money from another investment (I assume it is invested. Who has money sitting around, not doing anything?) to pay the roll-over tax, you loose the dividends, interest etc. from that investment.

Now, I've read a number of articles on this topic arguing that a roll-over is good for everyone. Vanguard included. However, I don't think I've read any discussions about the social security angle nor the loss of income from the investments used to pay the roll-over tax.

Am I all wet?
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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: 690 of 121181
Subject: Re: Roth IRA roll-over Date: 11/17/1997 2:36 PM
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<<If, you roll-over a current IRA to a Roth type, you must pay taxes on the rolled-over monies, because this now becomes a distribution. >>

Yup...

<<If you roll-over in 1998 you can distribute your tax burden over a four year period.>>

Right again...

<<If you take monies from the Roth roll-over, to pay the taxes, the monies are taxed as ordinary income for the year of the roll-over.>>

Not really...and this gets much more complicated. But, under the Tech Correction bill, your "early" withdrawal may not be taxed as income, it could be subject to a 20% penalty (10% for early withdrawal and 10% because of the 4-year tax deferral). But, regardless, it could still get ugly.

<<If you take money from another investment (I assume it is invested. Who has money sitting around, not doing anything?) to pay the roll-over tax, you loose the dividends, interest etc. from that investment.>>

Correctamundo...

<<Now, I've read a number of articles on this topic arguing that a roll-over is good for everyone. Vanguard included. However, I don't think I've read any discussions about the social security angle nor the loss of income from the investments used to pay the roll-over tax.>>

We have had some of those discussions here and on the AOL site. Which is why all of these issues, along with others, must be considered prior to making the rollover. Making the rollover from a regular IRA to a Roth IRA, in most cases, is NOT a "no-brainer", but takes study and analysis. A blanket statement by anybody that says the rollover is beneficial to ALL taxpayers is off base, IMHO.

<<Am I all wet?>>

Only if you're standing in the rain.

TMF Taxes
Roy

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Author: GaFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 698 of 121181
Subject: Re: Roth IRA roll-over Date: 11/17/1997 11:34 PM
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For most situations the regular IRA and ROTH IRA are mathematically identical. The taxes paid today for a ROTH IRA rollover or a contribution to a ROTH IRA is equivalent to the future value of taxes on the same investment in a regular IRA. This issue will always be mute unless the holder anticipates a higher (or lower) tax bracket in retirement. Therefore, the advantages come from ROTH's other features such as no mandatory distributions, though included for estate taxes, no income tax to heirs, etc. should be considered.

The possibility of leaving a substantial ROTH IRA to a young heir that receives income tax-free distributions over their lifetime while the investment continues to grow is intriging.

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Author: cltdan Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 794 of 121181
Subject: Re: Roth IRA roll-over Date: 12/2/1997 10:11 PM
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oneplez wrote:
<<If you take money from another investment (I assume it is invested. Who has money sitting around,
not doing anything?) to pay the roll-over tax, you loose the dividends, interest etc. from that
investment.>>

In addition, if that investment has appreciation (hopefully a lot), you will need to pay capital gain and state tax on the sale of that investment in order to pay the Roth tax. Roth conversion seems to defeat the basics of IRA, ie tax deferral.

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Author: oneplez Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 799 of 121181
Subject: Re: Roth IRA roll-over Date: 12/3/1997 3:38 PM
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Re: cltdan

Another good point not to roll over!

Will all this go away if we get a 'flat tax'? Or a national sales tax?

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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: 801 of 121181
Subject: Re: Roth IRA roll-over Date: 12/3/1997 7:15 PM
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<<Roth conversion seems to
defeat the basics of IRA, ie tax deferral.>>

Well, yes..the Roth IRA is very much different from tax deferral...

It becomes TAX FREE.

Quick...

Would you rather have $1 million tax deferred, or $500K tax free???

So while the Roth Rollover may not be for everybody, it is CERTAINLY a good deal for many.

TMF Taxes
Roy

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Author: cltdan Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 807 of 121181
Subject: Re: Roth IRA roll-over Date: 12/3/1997 10:12 PM
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TMF Taxes wrote
<<Quick...

Would you rather have $1 million tax deferred, or $500K tax free???>>

Is this a trick question? I would take the $1 million

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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 814 of 121181
Subject: Re: Roth IRA roll-over Date: 12/4/1997 2:55 PM
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<In addition, if that investment has appreciation (hopefully a lot), you will need to pay capital gain and state tax on the sale of that investment in order to pay the Roth tax. Roth conversion seems to defeat the basics of IRA, ie tax deferral.>

Remember, the government is not doing any of this to make us richer. The Roth was done so that people would convert (and pay tax now) to balance the budget now. They want the tax money we would normally pay when we start taking distributions NOW. Those who roll over an IRA into a Roth are doing this. (This does not mean it is a bad idea for someone to do this; it is just another short-sighted government scheme: hide the problem now and let the future suffer. The taxes you pay now you will not pay later (unless the @#$%^&*(
change the law again)).

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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 815 of 121181
Subject: Re: Roth IRA roll-over Date: 12/4/1997 2:58 PM
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< Will all this go away if we get a 'flat tax'? Or a national sales tax?>

G.O.K.: No one's money is safe when the legislature is in session.

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Author: JeanDavid Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 816 of 121181
Subject: Re: Roth IRA roll-over Date: 12/4/1997 3:05 PM
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<Would you rather have $1 million tax deferred, or $500K tax free???>

I guess it depends on your state tax rate. If I take the $1,000,000 tax deferred and pay $396,000 to the IRS and $63,700 to the State of New Jersey, I would be better off with that. But if your state taxes are a little over 10%, you would be better off with the $500,000 tax free.

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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: 819 of 121181
Subject: Re: Roth IRA roll-over Date: 12/4/1997 7:14 PM
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<<Would you rather have $1 million tax deferred, or $500K tax free???>>

Is this a trick question? I would take the $1 million>>

Really?

Say that you live in a high tax state, with a tax rate of 12% or so. And your top end Federal tax rate would be about 40% (not to mention the higher EFFECTIVE federal tax rate when you lose your personal exemptions and itemized deductions). And God help you if the ordinary tax rates get kicked up in the future.

Since tax deferred means just that (i.e., SOMEBODY will pay taxes on these amounts...at ordinary rates) these amounts really are really almost equal.

So, it was kind of a trick question...just tricky enough to make you think about the different alternatives.

TMF Taxes
Roy

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