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I recently rolled over my small 401(k) from an ex-employer to a conduit IRA. I don't think my new employer allows the IRA funds to be rolled over into its 401(k) plan. I understand from reading material on this subject that a conduit IRA can only contain moneys from an employer retirement plan but not new money. I would like to make contributions to the conduit IRA rather than open a new IRA account. Do the new tax laws allow new money to be contributed to the conduit IRA? If so, does the annual limit (which I understand is $3,000 for this year) apply to new monies, or the account balance (which is approx. $2,000) plus the new monies? Thanks.

Otto
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Greetings, Otto, and welcome. You asked:

I understand from reading material on this subject that a conduit IRA can only contain moneys from an employer retirement plan but not new money. I would like to make contributions to the conduit IRA rather than open a new IRA account. Do the new tax laws allow new money to be contributed to the conduit IRA?

Yes, they do. As of January 1, 2002, conduit IRAs are really a thing of the past. It is no longer necessary to keep qualfied retirement plan money in a separate traditional IRA to preserve its eligibility for a future transfer to a new employer's 401k, 403b, or 457 plan. Therefore, you may freely contribute to that IRA. Additionally, you may roll any previously untaxed money in any traditional IRA to a your present employer's plan provided that plan accepts rollovers from IRAs and your old employers' plans.

If so, does the annual limit (which I understand is $3,000 for this year) apply to new monies, or the account balance (which is approx. $2,000) plus the new monies?

The amount of an IRA rollover from an old employer's plan does not count against your annual contribution limit. Therefore, if you roll your plan money to an IRA this year, you may still contribute the full $3,000 to an IRA provided you have the earned compensation to do so.

For more on IRAs, see our IRA Area at http://www.fool.com/money/allaboutiras/allaboutiras.htm and IRS Publication 590 (Individual Retirement Arrangements) available for download at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

Regards..Pixy
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