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Greetings, Hobie1027, and welcome. You wrote:

<<My wife's company is discontinuing their profit sharing plan and I would like to take the money and set up an IRA for her.I have been told (by somebody who is sopposed to know these things) that (1. I will have to pay taxes on this money no matter what I do and (2. that I have to put this in a traditional IRA not a Roth. I was told I would have to wait a year before I could convert it to a Roth. Is this correct or am I getting unfoolish advice from unfoolish people? >>

You will not have to pay taxes on that sum if it is transferred to an IRA. Your wife should arrange for a direct transfer of the proceeds from the plan to the IRA. That avoids any and all potential tax problems. She should NOT get a check made out in her name that she intends to deposit in an IRA because that could due to mandatory 20% withholding of the sum in the plan. To complete a rollover in that situation, you would have to come up with the missing 20% yourself, add it to the plan's check, and then get that 20% back when you filed your tax return for the year. A direct transfer between custodians avoids that problem. Both the IRA provider and the plan custodian know how to do this and can guide your wife through the administrative hoops to get it done.

Yes, the money must go to a traditional IRA. A Roth cannot accept rollovers from anything other than another Roth or a traditional IRA. Once the money is in the traditional IRA, though, it can be further transferred to a Roth. There is NO waiting period to do so. However, that may or may not be advisable depending on a number of factors such as how the taxes due will be paid, how long the money stays in the Roth, your tax rate today versus that of tomorrow, and the size of and desires for your wife's estate. For details, see post 1567 on this board at

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