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Hi, folks,

I am new to both IRA's and the Fool. I have concentrated on getting out of debt and figured the 15% of my salary that went to our 403(b) would do for retirement. Perhaps that was a mistake, since TIAA-CREF hasn't done any better than the market for some time.

I am 52. I plan to work another 10-11 years and then retire. I want to open a deductible IRA to buy Income Investor (II) stocks and with the tax savings invest in II stocks like CTC that should not be in an IRA because of foreign withholding tax issues. I plan to convert the traditional IRA to a Roth in the first year after I retire after my income goes down.

Since I will be over 59-1/2, I won't have to wait five tax years to withdraw from the Roth Conversion without penalty, will I? Hopefully, I won't need to, since I will have SS and the TIAA-CREF.

Thanks,

dm222
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I'll let someone with a little more knowledge fill in the details, but you can't convert tax free. The traditional is pre-tax, the Roth is post-tax, so in moving it over, you have to pay tax on it. I don't see much of a benefit to moving to a Roth over just withdrawing from your traditional when you need it.
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I am new to both IRA's and the Fool.

Welcome!

I have concentrated on getting out of debt and figured the 15% of my salary that went to our 403(b) would do for retirement. Perhaps that was a mistake, since TIAA-CREF hasn't done any better than the market for some time.

I am 52. I plan to work another 10-11 years and then retire. I want to open a deductible IRA to buy Income Investor (II) stocks and with the tax savings invest in II stocks like CTC that should not be in an IRA because of foreign withholding tax issues.


Good thinking about the foreign tax issue. There is a problem with your plan, though. Becasue of the 403(b) coverage deductibility of IRA contributions is phased out based on your Modified AGI. You can get the current numbers in IRS Publication 590, Chapter 1. I'll proceed assuming that you are eligible for deductible contributions in order to deal with the rest of your issues.

I plan to convert the traditional IRA to a Roth in the first year after I retire after my income goes down.

Since I will be over 59-1/2, I won't have to wait five tax years to withdraw from the Roth Conversion without penalty, will I? Hopefully, I won't need to, since I will have SS and the TIAA-CREF.


You are correct about the penalty.

Phil
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Oops. I think I found the answer, and the five-tax-year hurdle still has to be met to avoid a penalty. See the paragraph following the bulleted qualifications in Roy's article here:

http://www.fool.com/taxes/2000/taxes000128.htm

Sorry for the diversion.

Duane
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I think I found the answer, and the five-tax-year hurdle still has to be met to avoid a penalty. See the paragraph following the bulleted qualifications in Roy's article here:

Welcome to the wonderful world of simplified tax law. (Be sure to write your representatives in Congress and thank them.)

What the 'graph you refer to says is that the distribution of a conversion within 5 years would be "nonqualified." This is true. What that 'graph doesn't say is that if you take a nonqualified distribution after age 59 1/2, there's no penalty, just tax. Since you've already paid tax on a coversion at the time of conversion, there would be no penalty for a subsequent nonqualified distribution of it.

Phil
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Doesn't the 403(b) make the OP ineligible for deductible Traditional IRA?
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Since you've already paid tax on a coversion at the time of conversion, there would be no penalty for a subsequent nonqualified distribution of it.

Just to add a bit, if earnings are withdrawn before the 5 tax year requirement is met, they will be taxable. But since you withdraw all of your Roth contributions and conversions before you withdraw earnings, it shouldn't be too hard for our OP to avoid this problem.

--Peter
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Doesn't the 403(b) make the OP ineligible for deductible Traditional IRA?

No. But it does greatly reduce the threshold for making deductible contribuitons. Without a plan, a married couple can make deductible IRA contributions when their MAGI is under $150k. With a plan, that MAGI limit is reduced to $70k.

Those are the beginning numbers for the phase-out ranges.

--Peter
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Without a plan, a married couple can make deductible IRA contributions when their MAGI is under $150k. With a plan, that MAGI limit is reduced to $70k.

Not quite. Check the table in Pub. 590 page 13.

If you file single and are not covered by a retirement plan at work, you can take a full deduction regardless of modified AGI.

If you file married filing jointly or separately and neither you nor your spouse are covered by a retirement plan at work, you can take a full deduction regardless of modified AGI.

If you file married filing jointly, but your spouse is covered by a retirement plan at work, your deduction will be limited if modified AGI exceeds $150k. No deduction is allowed if modified AGI exceeds $160k.

If you file married filing separately, but your spouse is covered by a retirement plan at work, you only receive a partial deduction if modified AGI is less than $10k. No deduction is allowed if modified AGI exceeds $10k.

Bill
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Not quite.

You are correct. I've got to read my cheat sheets instead of depending on my memory.

--Peter <== not sure why the correct figures got burned into his brain, but not the correct situation.
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And

"If you file married filing jointly, but you are covered by a retirement plan at work, "

then what? Tha's the OP's situation.
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"If you file married filing jointly, but you are covered by a retirement plan at work, "

then what? Tha's the OP's situation


That's the one I got right.

<consulting cheat sheet>
Married joint, and you are covered by a plan, you can deduct a full IRA contribution with 70k of MAGI, and have no deduction at $80k of MAGI. Inbetween the figures, your deduction is reduced proportionally.

For singles or heads of households, the numbers are $50k and $60k. (Yep, the marriage penalty isn't completely gone.)

And if you are married filiing separately, the numbers are $0 (zero!) and $10k. IOW, if you are MFS and are covered by a pension plan, you aren't going to get an IRA deduction in most cases.

All of these are for 2005, and will change for 2006. My cheat sheet doesn't cover 2006, so I will not comment.

--Peter <== hoping he can read and copy without problems this time
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