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Author: SpeedyElCoyote Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Roth Rollover Questions Date: 2/29/2004 9:06 AM
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Thanks in advance for any thoughts. I'll be away for the next week - so I won't be able to respond to your thoughts until then.

Are there any limits on what can get rolled over and how much? For example - let's say I earn $60,000 and $95,000 is the limit for qualifying for a Roth. Does that mean I have a maximum of $35,000 I can rollover into a Roth in order to stay under the limit?

What tax rate is used for money rolled from a SEP? Let's say I put $4000 into a SEP this year. Had I not - I would have paid tax on this money including a self-employment tax. If I roll that money over next year - would the self-employment tax still apply? Or is this a little loop hole?

There is a limit of $3000 ($3500?) for contributions into a Roth. However - are there any limits on rollovers? Can they occur in the year after they were contributed to the original account? Is this a loophole for getting around the max contribution? Is it possible to invest $8000 in a SEP each year and roll it into a Roth in the following year (assuming you still qualify for the Roth in the following year)?

Thanks for your thoughts.
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39528 of 76398
Subject: Re: Roth Rollover Questions Date: 2/29/2004 11:57 AM
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Welcome, SpeedyElCoyote. Glad you could join us.

The $3K limit on Roth contributions refers only to the amount of new cash you can add to the account in any one year (and its the sum of your contributions to all of your Roth and IRA accounts in any one year). Rollovers and conversions are not included in this 3K limit.

The income limit on qualifying for contributions to a Roth also does not apply to conversions. You may convert any amount you are willing to pay taxes on. As a practical matter, many of us would hesitate if the Roth conversion gets taxed at the highest income tax rates. Its usually better to convert when you can convert at say a 15% income tax rate or lower. At 25% or higher, I would hesitate, keep the money in a conventional IRA (or 401K etc) and hope for a low income year or better laws in the future. But this does depend on your age somewhat. If you are approaching the age 70-1/2 mandatory distribution age, you might have to hurry.

On the SEP tax, I have to defer to the experts. I am under the impression the 15% SEP tax is for Social Security. You do not pay it on a Roth conversion.

I'll have to pass on the rules for rollovers from an SEP.

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Author: tlswms One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39544 of 76398
Subject: Re: Roth Rollover Questions Date: 3/1/2004 3:25 AM
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Late 2003 we converted our traditionals and 2 things drove the timing decision.

1) our income was approaching the cutoff of 100k and we were concerned we might exceed in future years and not be able to convert.

2) though the tax rate was steep and I agree if you think your rate will fall to wait - we didn't anticipate being in a position where the rates would be lower for us anytime before retirement (we're not taking a year off to travel the globe) - especially given the sunset provisions on the current tax breaks and the long term fiscal health of the the USG - we see rates rising...




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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39574 of 76398
Subject: Re: Roth Rollover Questions Date: 3/1/2004 7:26 PM
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Author: tlswms | Date: 3/1/04 3:25 AM | Number: 39544

1) our income was approaching the cutoff of 100k and we were concerned we might exceed in future years and not be able to convert.

Correct me if I'm wrong, but I do not believe that there is any income test on conversions. I think the income limit only affects your eligibility to make an annual contribution ($3000 or $3500 if you are over 50).

Russ

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Author: tlswms One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39590 of 76398
Subject: Re: Roth Rollover Questions Date: 3/2/2004 1:51 AM
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Correct me if I'm wrong, but I do not believe that there is any income test on conversions. I think the income limit only affects your eligibility to make an annual contribution ($3000 or $3500 if you are over 50).

For a conversion IRA requires 2 things

1) modified AGI for Roth purpose (didn't read the details but it's defined in pub 590) not greater than 100k and

2)not married filing separate

Tom

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Author: SpeedyElCoyote Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39806 of 76398
Subject: Re: Roth Rollover Questions Date: 3/13/2004 10:11 AM
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Thanks for all your thoughts. In terms of the little self-employment loop hole I was wondering about - I found out that self-employment tax (which includes social security) is taken out before the deduction. Thus - there is no way around this tax. Which seems quite reasonable.

Robert

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