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Setup:
- Married filing jointly
- Both covered by retirement plans at work (maxed out) and AGI above limits
- I have 1 IRA, 1 SEP-IRA (both completely pretax) and 1 Roth IRA
- Wife has 1 IRA (completely pretax)

I thought there was a AGI limit for Roth conversions, but it looks like that was canceled in 2010. We haven't made any contributions for 2011 or 2012 yet. Can we each contribute $10,000 to a nondeductible IRA (5K for 2011, 5K for 2012) and then turn around and convert all of those to Roth IRAs? That seems like it skirts the AGI limits placed on Roth IRAs, but I can't find any evidence that it is not allowed.

I would probably also convert our regular IRAs, but I'd like to keep my SEP-IRA the way it is. Is that OK?

Thanks in advance,

Vinod
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I thought there was a AGI limit for Roth conversions, but it looks like that was canceled in 2010.

Correct. Also gone is the prohibition on conversion for Married, Filing Separately filers.

We haven't made any contributions for 2011 or 2012 yet. Can we each contribute $10,000 to a nondeductible IRA (5K for 2011, 5K for 2012) and then turn around and convert all of those to Roth IRAs? That seems like it skirts the AGI limits placed on Roth IRAs, but I can't find any evidence that it is not allowed.

It does skirt, and it is allowed. BUT. It won't have the tax effect you think. You cannot isolate your after-tax contributions, even in a separate traditional IRA account, and convert just those contributions. You must look at all of your traditional IRA accounts, including rollovers from employer plans, SEPs, and SIMPLEs. See Part I of Form 8606, which is where you would calculate the taxable amount of the conversion.

Phil
Rule Your Retirement Home Fool
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That seems like it skirts the AGI limits placed on Roth IRAs, but I can't find any evidence that it is not allowed.

It does skirt the AGI limits. If you don't have any other IRAs, it works well. If you have pre-tax traditional IRAs at the time of conversion, then the cost basis is prorated across the entire value of yours (individual, not include spouse's IRAs).
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Doesn't the rollover have to be done before the end of 2011 to go on the 2011 tax forms? I'm not sure you get the same grace period till tax day as the contribution.
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Doesn't the rollover have to be done before the end of 2011 to go on the 2011 tax forms?

A rollover can begin in one tax year and be completed in the next as long as it's within the 60-day window. However, we weren't talking about rollovers, we were talking about conversions. Conversions are taxable in the year they begin.

Phil
Rule Your Retirement Home Fool
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