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Author: Zathrus Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Waiting period on rollovers? Date: 9/28/1998 5:14 PM
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I've been thinking of rolling my IRA over into my ROTH since it would have a fairly substantial benefit to me come withdrawal time (40 years from now). Went back and read the Fool postings on ROTHs (thanks for the links in the C-K port!) and found a question.

I just rolled money out of 401k and 403b plans into my IRA in the last month. Can I now roll it over into a ROTH? Looking over the IRS website (http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p5900402.htm) there is a waiting period of one year and I'm not sure if it applies or not. I don't think it does since the rollover IRA was created from 401k/403b plans and not another IRA, correct?

FWIW, the monies in the IRA are all pre-tax. There was no employer match (bah!).

On a related note, should I try to get the IRA rolled into my current contributory account or into a new rollover one? I do not plan on withdrawing this money before retirement, so the 5-year rule doesn't concern me. The only thing that does is the idea that Congress might change the rules on ROTHs in the next 40 years in some way that affects contributory and rollover monies differently. Or am I just being paranoid?

Finally, how can I estimate the tax hit? If I do this before the end of the year I'll spread it across 4 years.

Zathrus
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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: 5713 of 76421
Subject: Re: Waiting period on rollovers? Date: 9/29/1998 8:44 AM
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Greetings, Zathrus, and welcome. You asked:

I just rolled money out of 401k and 403b plans into my IRA in the last month. Can I now roll it over into a ROTH? Looking over the IRS website (http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p5900402.htm) there is a waiting period of one year and I'm not sure if it applies or not. I don't think it does since the rollover IRA was created from 401k/403b plans and not another IRA, correct?

It does not apply if you arrange for a direct transfer of the monies between the current custodian and the Roth custodian. A rollover is when you get the money from a retirement plan (the 401k/403b count) or another IRA and within 60 days deposit it into a new or different IRA. A rollover is limited to one per any 12-month period. A direct transfer occurs when the money flows between the two vehicles without stopping at you first. Those may be done at any time and as often as they can be arranged. To set one up, just tell the Roth custodian that's what you wish to do. The gaining custodian will send you some forms to complete, one of which is the request to the old custodian to send the money to the Roth IRA. Complete the forms you receive, return them, and in 30 to 60 days the transfer will be complete with no muss, fuss or problem.

On a related note, should I try to get the IRA rolled into my current contributory account or into a new rollover one? I do not plan on withdrawing this money before retirement, so the 5-year rule doesn't concern me. The only thing that does is the idea that Congress might change the rules on ROTHs in the next 40 years in some way that affects contributory and rollover monies differently. Or am I just being paranoid?

That's a highly unlikely event IMHO based on the most recent changes to Roth law. IMHO, if changes to Roth rules occur, they will impact all Roth accounts, not just a conversion or contributory IRA by itself. For ease of administration, I personally would prefer one account for both types of money.

Finally, how can I estimate the tax hit? If I do this before the end of the year I'll spread it across 4 years.

Whether you claim the conversion income in one year or spread it over four, you know it will increase your income for the year claimed. Therefore, just assume it will be taxed at your marginal rate for that year.

Regards….Pixy





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