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I think I know the answer to this, but I want to double-check with you nice people to make sure I'm not going to do something foolish when I'm trying to do something Foolish.

This year I changed jobs and rolled my 401(k) to a Rollover IRA which I have subsequently converted to a Roth Conversion IRA (held by Fidelity).

Now, before the tax year is over, I want to make an additional contribution to my Roth. So my questions are:

1) Am I allowed to make the contribution having done a conversion this year?

2) If so, are there any limits on the amount I can contribute (except the obvious 2,000 annual limit for Roths)? I contributed to my 401(k) from January to May of this year.

I believe that for my situation, I'm allowed to make the full 2,000 Roth contribution this year and I can put it in the same Roth that I converted. Is there any reason I wouldn't want to do this?

Thanks in advance,
-GeekFoolBoy
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GeekFoolBoy asks:

I think I know the answer to this, but I want to double-check with you nice people to make sure I'm not going to do something foolish when I'm trying to do something Foolish.

This year I changed jobs and rolled my 401(k) to a Rollover IRA which I have subsequently converted to a Roth Conversion IRA (held by Fidelity).

Now, before the tax year is over, I want to make an additional contribution to my Roth. So my questions are:

1) Am I allowed to make the contribution having done a conversion this year?

2) If so, are there any limits on the amount I can contribute (except the obvious 2,000 annual limit for Roths)? I contributed to my 401(k) from January to May of this year.

I believe that for my situation, I'm allowed to make the full 2,000 Roth contribution this year and I can put it in the same Roth that I converted. Is there any reason I wouldn't want to do this?


Your belief is 100% correct. The conversion has no impact on your ability to make an annual contribution to a Roth. You may still contribute up to $2K this year to a Roth and that contribution legally may be made to the conversion IRA you opened with Fidelity. Administratively, to me that makes sense. However, Fidelity may say the IRA agreement you signed for the conversion account says you will not make annual contributions to that account. If so, just be persistent and, if necessary, threaten to move the conversion account to a provider who will allow contributions. Other than the fact Fidelity may be following now out-dated guidance from the IRS, there's absolutely no reason a conversion and contributory Roth IRA must be separate. My guess is they won't prevent you from doing so despite what the inittial IRA agreement says.

Regards…..Pixy
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Pixy writes:

<<Your belief is 100% correct. The conversion has no impact on your ability to make an annual contribution to a Roth. You may still contribute up to $2K this year to a Roth and that contribution legally may be made to the conversion IRA you opened with Fidelity. Administratively, to me that makes sense. However, Fidelity may say the IRA agreement you signed for the conversion account says you will not make annual contributions to that account. If so, just be persistent and, if necessary, threaten to move the conversion account to a provider who will allow contributions. Other than the fact Fidelity may be following now out-dated guidance from the IRS, there's absolutely no reason a conversion and contributory Roth IRA must be separate. My guess is they won't prevent you from doing so despite what the inittial IRA agreement says.>>

Pixy,

Thanks for your reply. I've contacted Fidelity about this and received a response that I found less than satisfactory. Here is the relevant portion of their response for everyone's edification:

<<Although the IRS does not require that Roth IRA contributions and conversions be kept separate, we still maintain separate registrations for these account types. For recordkeeping purposes, we are not currently allowing Roth IRA contributions to be made to conversion accounts. If you would like to contribute to a Roth IRA, you will need to establish a Roth Contributory IRA. We are sorry for any inconvenience this causes you.>>

So, according to this, I'll have to maintain two Roth IRA accounts (with two annual fees and double the commissions if I do any trading). All this for no better reason than their 'internal recordkeeping'. I'm crafting a response to this nonsense now. I'll let everyone know how it turns out.

Anybody out there know of other brokerages (besides Ameritrade) which currently *do* allow mingling of conversion and contributory money? I figure the more I can scare them with competitor's names, the better...

-GeekFoolBoy
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GeekFoolBoy writes:
Anybody out there know of other brokerages (besides Ameritrade) which currently *do* allow mingling of conversion and contributory money? I figure the more I can scare them with competitor's names, the better...

Yep, as I wrote in message #5684:

For what it's worth, I've been able to make such contributions to a Vanguard IRA (not a Vanguard Brokerage Services account, just funds). However, they do still require the contribution request in writing.

You might also try pointing them to http://www.fairmark.com/rothira/combine.htm .

Good luck.

- Darrell
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DarrellK Writes:

<<For what it's worth, I've been able to make such contributions to a Vanguard IRA (not a Vanguard Brokerage Services account, just funds). However, they do still require the contribution request in writing.

You might also try pointing them to http://www.fairmark.com/rothira/combine.htm .>>

Darrell,

Thanks. I'm trying to focus on brokerage accounts, but every little bit helps. Also, they do know that making additional contributions to a Roth conversion account is allowed, they just don't want me to do it.

I sent in a response to their nonsense and I'm expecting a reply shortly.

-GeekFoolBoy
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Just a quick recap: I had originally asked Pixy about making additional contributions to a Roth IRA which I had opened this year as a conversion from a regular IRA. Much to my delight, I found out that it is possible to make addional contributions to this account this year. Trouble began, however, when my account holder (Fidelity) informed me that they would not allow additional contributions to a conversion Roth, but instead, I must open a new Roth account (a contributory Roth) to accept the contributions.

I was not pleased.

The primary issue I have with this is that it will cost more to make trades with an investment approach like the Foolish Four b/c the stocks will be held in two accounts. There are some creative things I can do to minimize the impact, but the point remains that I shouldn't have to.

After going back and forth with a few e-mail messages, this is the final word I have received from Fidelity:

<<You raised some very valid points about the trading costs associated with maintaining both Roth IRA registrations. As mentioned in our earlier message, we have forwarded the details of your message to our development department and are currently reviewing our recordkeeping systems to determine if we can accommodate our customers' requests to combine the two Roth IRA registrations. At this time, we do not have additional details of when any changes would take effect, although we do anticipate making some changes
after the first of next year.>>

So, at this point they won't do anything, but the door is open for them to straighten out the mess at a later date. Hopefully, they will see the error of their ways.

I've posted this as a FYI for anyone who may be considering a conversion to a Roth from a traditional IRA. Had I known Fidelity would not allow additional contributions to the account before I made the conversion, I would have gone with a different broker.

It's those darned unasked questions that get you every time. ;-)

-GeekFoolBoy
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GeekFoolBoy worte in part:

So, at this point they won't do anything, but the door is open for them to straighten out the mess at a later date. Hopefully, they will see the error of their ways.

I've posted this as a FYI for anyone who may be considering a conversion to a Roth from a traditional IRA. Had I known Fidelity would not allow additional contributions to the account before I made the conversion, I would have gone with a different broker.

It's those darned unasked questions that get you every time. ;-)


Hang in there. I'm still betting they'll all come around by the end of the year.

Regards….Pixy

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See below for exerpts from the thread.

If you look back on the threads on htis board, Pixy has recently confirmed that the conversion to a Roth can be "unconverted"; in fact, even more than once.

If your IRA custodian (in this case Fidelity) will not bend to the new rules, how about this:

1) "Unconvert" your Roth at Fidelity
2) Transfer your IRA to a new custodian that will allow contributions to the conversion Roth
3) Re-convert at the new custodian
4) Make your contributions

In the future, if Fidelity comes around to the new rules, you could then transfer your Roth back to them, if this is your preferred custodian.



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GeekFoolBoy worte in part:

So, at this point they won't do anything, but the door is open for them to straighten out the mess at a later date. Hopefully, they will see the error of their ways.

I've posted this as a FYI for anyone who may be considering a conversion to a Roth from a traditional IRA. Had I known Fidelity would not allow additional contributions to the account before I made the conversion, I would have gone with a different broker.

It's those darned unasked questions that get you every time. ;-)

Hang in there. I'm still betting they'll all come around by the end of the year.

Regards….Pixy
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