Roth Ira Rollover

Frequently Asked Questions

1. QUESTION:
   Convert from Rollover to Roth IRA? How much taxes do I have to pay?
   I currently have 2k in a rollover IRA, & have read its best to have a Roth. If I convert, how much do I have to pay in taxes next year? Should I pay it out of pocket or out of the Rollover IRA?
   Some facts: 23 yrs old, will contribute 0 to the IRA this year & my AGI is around k (I know the amounts are small, but I’m doing the best I can!)

   • ANSWER:
     1- if you still work for the same company you have that 401k with – you can’t roll it anywhere.
     2-why on earth would you want to voluntarily lose 25-30% (tax and early withdrawal penalty) by converting it from pre-tax to post tax
     3-if you HAVE left the company -just roll it over to a regular IRA – you won’t lose any of the money

2. QUESTION:
   Mutual fund IRA rollover vs. Roth IRA : which is the better move?
   Last year, I rolled all of my investments from the 401K plans of previous employers into a mutual fund IRA rollover account. I have recently been considering putting that money into a Roth IRA. I would not be contributing regularly to the Roth IRA, were I to do it.

   What are the advantages and/or disadvantages of doing this? Is my money as likely to grow as it would in a mutual fund investment? What are the tax issues involved with such a move?

   • ANSWER:
     You are not able to do this type of rollover because when you contribute to a 401k or a traditional IRA these funds are contributed on a pre tax basis where as a ROTH IRA funds are contributed by money that has already been taxed (like the money you take home from your paycheck)
     The tax differences are when you take money out of a 401k since that money was contributed pre tax (the contributions came out of your paycheck before the taxes are taken out) you have to pay taxes when you are ready to “cash out” your 401k but here’s the kicker. You pay about 20% federal taxes on the amount taken out (depending on your tax bracket or what the taxes will be at the time you take the money out) plus, if you take your money out before you are 55 and retired or 59 and still working then you taxed an additional 10% early withdrawl penalty…..so a lot of your money is gone to taxes.
     ROTH accounts are contributed by money that is already taxed so that when it is removed you may only be subject to the early withdrawl tax but no state or federal tax.
     But back to the original questions, since one is a pre tax contribution and the other is post tax you are unable to combine them in one account. Even if you suggest making up the taxes or whatever it just doesn’t happen, anywhere.
     You can contribute more money per year into a 401k plus you may also receive employer match.
     You can diversify and have both an IRA and ROTH IRA…speaking w/ a financial advisor is your best bet

3. QUESTION:
   When converting from a Rollover IRA to a Roth IRA, is the money from the 401k rollover non deductable?
   I’m doing my taxes and I’m wondering if any of the money in the traditional IRA I converted to a Roth IRA in 2005 is treated as a non deductable conversion. ,400.00 was rolled over from a former employer 401k into a rollover IRA in 2002. Is this money treated as non deductable or do I have to pay tax for conversion purposes to the Roth IRA on this portion of the total amount I converted as well?

   • ANSWER:
     What you need to figure out is whether any of the original contributions to the 401k were after tax dollars. If they were, they would not be taxable on the Roth conversion. Your 401k statement will usually seperate pre and after tax contributions. If all of the contributions to the original 401k were pretax dollars than the total amount of the conversion is taxable in the year of the conversion.

4. QUESTION:
   Should I convert my Rollover IRA to an existing Roth IRA?
   I currently have two IRAs, a Rollover IRA worth ,100 and a Roth IRA worth ,000. They are both at the same brokerage.

   Is it wise for me to convert my Rollover IRA to my current Roth? What kind of penalties and taxes will I have to pay? Is there a better way to minimize taxes? Should I have the tax withheld or should I pay from the taxes/penalty from an outside source rather than from the IRA?

   My current gross income is around 45k and in the 25% tax bracket.

   • ANSWER:
     Here’s the situation:

     1. Converting to a Roth does not have a penalty. All you will owe is income tax on that money, so….

     00 x 25% (your tax bracket) = 75 extra taxes you will owe

     2. It does make sense to convert this if…
     a. you have enough money to cover the tax bill
     b. you expect your tax rate to rise in the future (in other words, when you retire, you think your tax rate will be higher than it is now
     c. you want a source of tax free money when you retire

     3. Another strategy is this: you could convert a portion each year. Since this money is taxed as ordinary income, you could convert a small amount each year so it doesn’t bump you into a higher tax bracket. Also this strategy would ensure that you are not shocked by your higher tax bill at year end

     4. Once you make over 0,000, you are no longer eligible to convert (this law is changing in 2010)

     5. DO NOT, I REPEAT DO NOT WITHHOLD TAXES! take care of them yourself at year end. The reason for this is the following: if you convert lets say 00 and withhold 20% or 00, the 00 withheld goes straight to the federal government. Well, guess what? Since that money did not go into the Roth, the withholding itself is now subject to taxes PLUS a 10% penalty. Very bad deal.

5. QUESTION:
   can you rollover 401k into an existing roth IRA?
   I have a 401k with my job and a Roth IRA. I’m planning to leave my job soon (for school) so can I rollover my 401 into the current Roth IRA since it would be less than the annual contribution limit (about 00). Or do I have to open a “Rollover IRA” and then maintain two separate IRA accounts?

   • ANSWER:
     No, you cannot directly roll a 401(k) into a Roth. Set up a (conventional) rollover IRA. In 2010, a tax “window” will open to convert it to the Roth if you so choose.

6. QUESTION:
   401k rollover to Roth IRA for married couple both age 60, Does it make financial sense?
   With the new rule in effect as of March 2008 allowing a direct 401k rollover to Roth IRA, could you shed some light on this scenario: A couple, both over 60 files jointly and will be earning less income when retired. Currently both are working and earn 100,000. When retired their income will be 46,000. They have 300,000 combined in their 401k and would like to know if it makes financial sense to rollover to a Roth Ira. Thank you for your help.

   • ANSWER:
     The short answer is – it depends on the tax rate. Let’s take 3 scenarios: Tax rates stay the same, your taxes are lower in retirement and finally your taxes are higher in retirement.

     Assumptions:
     1) You pay for the conversion out-of-pocket (as opposed to funding it with monies in the 401(k)).
     2) If you do not convert, you invest what you would have paid in conversion costs in a taxable account.

     Currently, your marginal tax rate is 28% and in retirement it will be 25%. Paying 28% now, when you can pay 25% later makes a ROTH less attractive. If the government decides to raise taxes, when you retire, a ROTH makes more sense.

     Now, there are other subtle differences between the types of accounts, like required minimum distribtions, that effect estate planning. This example does not consider this.

     You can make a case either way if the government will raise or lower taxes in the future. Since we do not know with certainty, I suggest another option. Rollover 1/2 of your account. Keep some in a pre-tax account (401k) and some in a post tax account (ROTH).

     This is a different kind of diversification – tax diversification. See the source that I listed from vanguard.

7. QUESTION:
   Are there any tax advantages in converting a rollover IRA into a Roth IRA?
   As I understand it, if I convert the rollover into a Roth, I will then have to report the entire amount on my taxes as income the year I do the conversion. So after “x” number of years when I’m ready to start taking money out of my Roth, won’t I get taxed again? Am I setting myself up to let the IRS tax me twice on some of the same money?

   • ANSWER:
     Nope. When you convert it into the Roth, you pay taxes on it. Any distributions you then take from the money that you contributed are then tax free. However, to get tax free distributions on anything that the Roth earns (anything over the contribution amount), you must wait until you are at least 59 1/2 years old. If you withdraw it before then it is taxed as ordinary income and you will incur a 10% penalty.

8. QUESTION:
   Roth IRA vs. Rollover IRA, which one to contribute into?
   I have both a Roth IRA and a Rollover IRA account. I know there is a 00 contribution limit for my age in 2009. Am I allowed to contribute into either one, or both, as long as the total contribution is below 00? Thanks!

   • ANSWER:
     yes you can split the money and way you want to!!!

9. QUESTION:
   Should I convert my rollover IRA to a Roth IRA, considering it is at half the value it was?
   I have a Rollover IRA that has lost half its value. If I convert it to a Roth IRA, I will pay taxes now, but it will grow tax free from now on. Should I convert it now, or should I let it ride, and pay taxes down the road (25 years)?

   • ANSWER:
     By converting the money into a Roth IRA you will need to pay taxes on the amount you convert. If you can cover that next year without posing financial hardship to your overall situation you absolutely should do it. I did.

     Also, if the tax bill won’t be too steep, you can convert part of it and wait til next year to do the rest. But I have a feeling the market will recover quite a bit in the next 12 to 18 months.

10. QUESTION:
    can I fund my spsousal Roth IRA from my rollover?
    I am close to retiring & want to know if I can fund my Roth IRA with withdrawals from my rollover. I do not work now but my spouse does.

    • ANSWER:
      up to the amount of earning you made this tax year with a max of 5k!!!

11. QUESTION:
    Can I rollover my roth ira to a different company but also roth ira?
    My agent wants me to roll my Roth IRA to another company (company1)that has better interest rates. Can I roll my roth ira to another company (company2) without penalties?

    • ANSWER:
      Yes, you can. Have the new company do a direct transfer. Technically, they don’t call it a rollover, just a transfer.

12. QUESTION:
    Is it possible to borrow from a rollover IRA or Roth IRA to refinance a home?
    If so, what are the consequences and/or penalties?

    • ANSWER:
      See www.ira.com for the rules and restrictions.

13. QUESTION:
    can you rollover roth ira contributions to a traditional ira?
    I have both and would like to reap the tax deduction

    • ANSWER:
      No, you can go the other way, but not Roth to traditional. But if you already have a Roth IRA, you can still start or add to a traditional IRA within the yearly contribution limits, and get the deduction.

14. QUESTION:
    Transfer in kind Roth IRA rollover?
    If I were to do a transfer in kind rollover of a Roth IRA from one bank to another, is it counted towards my annual contribution limit towards a Roth IRA?

    • ANSWER:
      Sometimes you can do a transfer in kind, but not always, it really depends on what the underlying security is, for mutual funds the answer is often yes, in other cases it can be different, so you need to ask the new bank that question.

      No it does not count towards your annual contribution limit, its already in a roth, you are not contributing any new money.

15. QUESTION:
    IRA Rollover to Roth and EIC?
    How might a rollover from a traditional IRA to a Roth IRA
    affect eligibility for EIC ?

    In other words, exactly how is the IRA amount rolled over
    reported on a 1040.. what kind of “income” is it and how
    might it affect EIC eligibility ?

    • ANSWER:
      It is not “investment income” and does not count towards the 00 limit however it is still income and will raise your AGI, potentially past the EIC point.

16. QUESTION:
    Should I rollover into Traditional or Roth IRA?
    When I worked with the California school district, a retirement fund (401K) was set up for me. Now I have close to 00 that I want to rollover into an IRA. I always hear that Roth IRA’s are “better” but my boyfriend told me I should rollover this fund into a traditional IRA instead, and I honestly didn’t understand his answer. Can someone please tell me if he is right. What would be the better option here?

    • ANSWER:
      If you rollover your 401(k) plan into a Roth IRA you will have to pay taxes on all your contributions and capital gains. However, when you pull your money out of the Roth at Retirement time you will not have to pay any taxes on your withdrawals. If you rollover your 401(k) into a traditional IRA you will not have to pay any taxes up front, however after you make withdrawals in retirement you will have to pay taxes on everything you withdraw.

      The bottomline is taxes, pay them now with the Roth rollover or pay them later with a Traditional. Given the small amount that you have to rollover I would recommend that you take the Roth route it will not affect your tax liability that much anyhow, and hopefully when you retire it will be significantly more and tax free.

17. QUESTION:
    Can I rollover Traditional IRA to Roth IRA in 2007? Under what circumstance does it make sense?
    I put money in traditional IRA for last 3 years, can I convert them all to Roth IRA in 2007? Under what circumstance does it make sense?

    • ANSWER:
      none – you’ll lose 20-40% to taxes and penalty – there is no need to do it – it makes no sense

18. QUESTION:
    Can u rollover from traditional IRA to Roth IRA and avoid paying taxes?
    My parent made some traditional IRA into the bank and is it possible to rollover to Roth and avoid paying taxes when they withdraw it when it reaches to 70 1/2 years old?

    • ANSWER:
      When you go from a traditional IRA to a Roth IRA, it is called a “conversion”, not a rollover. When you do a conversion, it is a taxable event, thus you do not avoid paying the taxes.

      Creative thinking though! (Btw, you don’t have to withdraw assets from a Roth IRA at age 70 1/2).

19. QUESTION:
    Looking for computer program for calculating tax implications of convering rollover IRA to Roth IRA in 2007?

    • ANSWER:
      There is no program, other than a tax preparation program. You would do your taxes with and without the rollover and see the difference.

      If you know your tax bracket, you can estimate the cost of the rollover. If you rollover ,000 and your tax bracket is 25%, you will pay ,500 of income tax on the rollover.

      The rollover will increase your AGI and affect other deductions and credits as well, so just multiplying by your tax bracket will only be an estimate.

20. QUESTION:
    What’s the best company to rollover a traditional roth IRA from Chase?
    Since I am already uncomfortable with Chase, I am trying to figure out another company to rollover our IRAs where I will not be charged an annual fee. Any help is appreciated.

    • ANSWER:
      Try one of the large no-load companies – Vanguard, Fidelity and/or TRowe Price.

21. QUESTION:
    When converting a Rollover IRA to a ROTH IRA?
    do you have to stay under the 00 allowable contribution for the year or can you rollover the entire amount into the ROTH. Can you then contribute the additional 00 on top of the Rollover in the same year?

    Thanks for your experience, in advance.
    ex: Can I take all 20k from a rollover IRA and out it into a ROTH. Then, in the same year, can I contribute the ,000 allowable contribution?

    • ANSWER:
      When you convert any tax-deferred IRA to a Roth, whether it’s a rollover or not, you have to report all of the converted funds as ordinary income and pay the income tax. The yearly allowable contributions have nothing to do with this. If you are younger than 59 1/2 when you do the conversion, any part of the converted amount that you do not put into the Roth will be susceptible to the 10% early withdrawal penalty.

      Example. Your IRA is worth 50K and you are in the 25% tax bracket. You are going to have to pay ,500 in tax on the 50K. If you do not have the cash to replace that ,500, so that you can onlt afford to put .5 K in the Roth and keep the rest to pay the tax, you will pay a 10% penalty on the ,500.

      Converting regular IRA accounts to Roth are usually not a good idea, unless the value of the existing IRA is small, or you expect your tax bracket in your retirement years to be the same as in your working years. In that case, a Roth may be better in the long run, since you pay no tax on anything in it.

      Just saw the 20K figure. If that is the total value of your tax-deferred IRA, your tax hit won’t be that severe. If you’re in the 25% bracket, you’ll owe 5K in tax. If you have the 4K to contribute to a Roth (more about that later), use it to replace what you’re losing in taxes and add the other thousand as well, to put the entire 20K into the Roth and avoid the early withdrawal penalty. The lifetime tax-free benefits of the Roth should more than compensate for the 5K in taxes.

      The conversion is one transaction. Contributions are separate transactions. If you have the money to pay any taxes owed, plus put the entire 20K into the Roth, and still contribute the 4K for the year, you can go ahead. Remember that you can contribute to your Roth for 2007 until April 15, 2008. If you have the money to do the 2008 contribution as well, the sooner the better. Get that money working tax free as soon as possible.

22. QUESTION:
    2010 Roth IRA rollover?
    I have rollover 20K (before tax) from 401K to IRA. In 2010, I would like to rollover that amount to Roth IRA. Do I have to pay tax for that amount?

    • ANSWER:
      The full amount of a Roth IRA rollover is taxable, regardless of your age. There is a special rule for 2010 rollovers, however, under which you can elect to delay paying the tax by declaring half the rollover as taxable income in 2011 and half in 2012 (instead of all in 2010). People planning to use this provision are holding their breath in fear that Congress will change the law before then, or will increase the tax rates for 2011 and 2012 so high that the election becomes useless.

23. QUESTION:
    Roth IRA Rollover Question?
    I am a former school teacher with some money in teacher retirement that’s no longer growing, since I’m not an active teacher (nor do I plan on going back). I would like to rollover my teacher retirement money into my Roth IRA, but I’ve heard two different possibilities of how much I can roll over. I’ve heard that I can only rollover 00, since that is the maximum you con contribute to a Roth IRA for 2008…But I’ve also heard that since it’s a rollover and NOT a contribution that I can rollover the entire amount (since it’s under 0,000). I would love to rollover the maximum amount, but I’m confused as to how much I can do. Any ideas? Thanks in advance!

    • ANSWER:
      Actually, you’ve got it wrong on two counts.

      Rollovers are not contributions, so the contribution limit of 00 does not apply.

      Rollovers may be subject to an income limit, as in if your total income before the rollover is less than 0,000 (and you aren’t filing MFS), you can do the rollover.

      Me personally, I rolled a retirement account to a regular IRA (no tax issue) and then have rolled over money each year if I was still in the 15% tax bracket.

24. QUESTION:
    401K rollover to Traditional IRA or Roth IRA? Which is better?
    I have 10K in my 401K. I tend to roll it over to Roth, taxed once and never again, since only 4000 per year contribution is allowed, I can only rollover 10K this year 4000 and then next year 5000 and the rest, bit by bit? is that right? And I have to rolloever to a rollover IRA first right? Sincce I can only contribute 4000 or 5000 per year, the growth is not as large as if I have a larger lump sum compare to traditional. Unless I know by the time I retire, I am in a lower tax bracket… then traditional is good? I am confused, or maybe either turns out to be the same? I know traditional is tax deductable, Roth you can take the contributions out penalty free after 5 years. I read motley fool example and they said Roth is a bit better, but now I’m not sure. let’s just say, I can pay the tax now if I move it to Roth, but still, I can’t roll it all at once, correct?

    • ANSWER:
      you do not have to rollover to a traditional from a 401k… your can lump-sum it ALL out.

      Check with your brokerage, but I do believe the initial funding is not limited to 4k$ a year.

      Remember that you are paying 00 in penalties for early disbursal.. and whatever your income tax rate is on K. If you do it all at one time, you are paying a high hit on the penalty and potentially a high hit on the taxes.

      Were I you… I’d follow the path you are suggesting. Take it out in small bites and eat the penalties / pay the taxes that way.

      If you are young, and absent a matching 401k, the Roth IS your wisest move….If you have a MATCHING 401k you should fund it first and keep the money where it is… as the “match” is an INSTANT ROI that cost you NOTHING…

25. QUESTION:
    Can you make a partial rollover of a Traditional IRA to a Roth IRA? Has anyone done this?
    If you made non-deductible contributions to a Traditional IRA before the Roth existed, then it might make sense to convert that amount (where taxes have already been paid) to a Roth….so the earnings can grow tax-free rather than tax deferred. But do they allow partial rollovers? Or do you have to rollover the entire Traditional IRA, incurring taxes?

    • ANSWER:
      Partial rollovers are allowed. You are not required to rollover the entire traditional IRA. However…

      You cannot segregate the non-deductible IRA contributions and then rollover only those amounts to a Roth IRA.

      Example: You have ,000 in all of your traditional IRAs (not just the one with nondeductible contributions) and 00 is from nondeductible contributions. If you rollover ,000 of this money into a Roth IRA, the rollover will be considered 30% from the non-deductible contributions. You will rollover 0 with no tax, and pay income tax on ,100.

      This is figured on Form 8606.

26. QUESTION:
    If I buy SLV or GLD in my Roth or Rollover IRA, do I get the same tax advantages?
    I know these two symbols are considered collectibles and are always taxed at 28% no matter how long you hold them. Wouldn’t it make sense then to buy it in my Roth and not pay taxes on any of my gains?

    • ANSWER:
      Here is my take .. Since IRA and ROTHs are by nature, non taxable, the type of investment does not really matter. So while the gains would taxed usually at the highest rate, I would say it does not matter when talking about IRA/ROTHs.

      HTH.. Please double check with a CPA though ..

27. QUESTION:
    Roth IRA rollover – cost basis question?
    In a Roth IRA, I know that you can withdraw up to the total amount of your contributions (not gains) completely tax-free.

    But, if you roll your Roth over from one IRA to another (different custodian) would I still have the same cost-basis, or what would happen to the calculation of how much you’re able to take out tax-free?

    Would it just be however much you originally contributed to the first Roth, or would it be the amount that the new one was set up with, or would you just forfeit this right all together?

    I just want to make sure I fully understand all of the implications of moving my IRA to a new custodian.

    Thanks.

    • ANSWER:
      Your original contributions are your basis. A rollover from custodian to custodian has no tax consequences. Now remember that after age 59 1/2 you have free access to those funds without penalty or taxes. Make sure that you have the money in the account for five years.

28. QUESTION:
    I want to rollover my traditional ira to a Roth ira verses?
    I only have 00 in traditional, and want to roll it over now because i’m taxed in the 15% tax range. And when i but it in a roth ira, it’ll be tax free when i take it out when i retire. Verses the traditional ira, which would be taxed at a higher rate when i retire in 20 years, ( that is if i’m in a higher tax braket). Does this sound like a smart thing to do?

    • ANSWER:
      I use the rule that if I’m in a 15% tax bracket or less, I move IRA money…if I’m in the 25% bracket, I don’t.

      I’ve seen many retirees have *higher* tax rates in retirement than they do in the years before….

29. QUESTION:
    rollover traditional to roth ira account?
    my finance make less than 00 this year 2007. I will claim him on my 2007 tax return. can he still convert his traditional ira to roth ira without paying taxes ?

    • ANSWER:
      No. Your fiance’ will have to pay ordinary federal income taxes on the taxable amount, but will not have to pay the 10% penalty.

      If you do convert, finance professionals recommend paying the taxes from current income of personal savings rather than using a portion of the IRA conversion. That will hurt your investment potential.

30. QUESTION:
    Can I roll my Canadian RRSP plan into my US Roth plan & receive benefit of new tax law allowing IRA rollover?
    I am Canadian Citizen & US resident alien living in US and want to take advantage of new 2010 tax law that allows traditional IRA rollover into a Roth, BUT want to use my RRSP Canadian retirement funds to roll into Roth. Can this be done and, if so, how?

    • ANSWER:
      There is no provision in US law to rollover foreign retirement accounts. You can keep the RRSP, or cash it out.

31. QUESTION:
    rollover traditional ira to roth ira?
    my fiance has traditional ira account since year of 2000, and would like to rollover to roth ira – does he has complete the rollover by the end of the year 2007. His income this year 2007 is under 00. Does he still has to pay taxes or penalty ?

    • ANSWER:
      There is no penalty for switching from a traditional to a roth. It is just that once you switch, there are a lot of rules for switching back if you dont like it. If his income is only 3K this year. It would be a great time to switch. The money you convert to the roth is all taxable income in the current year. Your tax rate would be really low this year. The great thing is that you never have to pay tax on this money again. When you are old and make withdraws, you would have to pay whatever tax on any withdraw on the traditional ira but the roth is tax free for life.
      One caveat, if you are receiving benefits for being low income, do not convert the amount that would push him over the income limits for receiving the benefits. That would be a disaster.

32. QUESTION:
    Can I rollover a 401k into an existing roth IRA?
    Can I rollover a 401k into an existing roth IRA? Follow up question, after five years, can I withdraw all of the funds that I contributed to the 401k?

    Some context: I am contributing 16,500 to my 401k for the next few years, and I plan to roll it over to a roth IRA. Am I going to be able to access that money, or will it be frozen until I am 59 1/2?

    • ANSWER:
      Yes and yes. You’ll pay a penalty if you withdraw the money prior to it being in there five years. The five year “rule” means that you have to have the money in there for five years and be 59 1/2 prior to withdrawing it without facing a penalty.

      If both of those requirements aren’t met, you’ll pay the penaly.

33. QUESTION:
    Can I have a Roth IRA and Traditional (Rollover) IRA?
    I currently have a Roth IRA. I wasnt to roll over my 401K at work into a Traditional IRA…can I do that?
    I saw on the Suze Orman show not to put my 401k from my last employer to my new 401K at my new employer…just put it into an IRA.
    Thanks!

    • ANSWER:
      You can do a rollover IRA (traditional) from a 401(k). The IRA is far more flexible than the 401(k) so the advice is spot on.
      Each year you can contribute to BOTH a Roth and a traditional IRA if you wish–just can’t go over the max amount alloted for IRAs in any year ever (K for 2007). So you could put K in a Roth IRA and K in a traditional if you wanted.
      As to rollovers, you can roll the whole 401(k) in–that’s a special deal so no K limit there.
      In 2010 you can turn traditional IRAs into Roths so you can look up details on that and can transition as you wish.

34. QUESTION:
    can you convert a rollover/ira to a roth/ira?
    i rolled over a previous company retirement plan to my rollover/ira, can i now convert that rollover to a roth?

    • ANSWER:
      Remember the word
      Recharacterization.
      You are about to re-characterize.
      Keep notes of everything you do and make sure everything is done right.
      /

35. QUESTION:
    Rollover IRA to 401K and Roth Conversion?
    IRA to 401k Rollover and Roth IRA Conversion in same year?

    My wife had her 401k rolled over to traditional IRA#1 in 2008
    when she had quit working. Now after resuming work, she wants to rollver back to new 401k,
    as the IRA#1 exists in same org which held old 401k and is charging annual fees!!

    Meanwhile, this year we opened new traditional IRA#2 in another place and made
    non-deductible contributions to 2010 and 2011. We initiated
    a Roth IRA conversion on Sat and its pending currently at Vanguard.
    Since all our contributions were non-deductible and I assumed we had
    no other balance anywhere in other IRAs, (totally forgetting about
    IRA#1) I thought there were no taxes to be paid.

    We then realized that because of IRA#1, and pro-rated tax some % of
    our conversions will be taxed un-necessarily. Since her total IRA will
    now also include tax deductible portion though not a big % of total IRA.

    We would ideally like to put back IRA#1 to new 401k and isolate the
    tax deductable IRA part and then go for conversion. But problem is
    we already initiated the conversion.

    We are thinking of some options:

    1) Try to stop the conversion? Is this possible?

    2) If not, Let the Roth conversion complete for IRA#2, and immediately initiate 401K rollover
    from IRA#1.

    Does this still mean we owe taxes on conversion? When is total IRA balance to be
    calculated? During time of conversion or end of year?

    3) OR Recharacterize and undo the Roth conversion, then initiate IRA#1 to 401k Rollover.
    I read that only one rollover per year is allowed per account. So is this possible?

    Does this help in avoiding tax at end of year? Can I again do another conversion from IRA#2 to
    Roth later?

    4) OR recharacterize and undo the Roth conversion, then transfer from IRA#1 to IRA#2 and
    again trigger Roth Conversion. I am ok on paying taxes in this case as long as I can
    get rid of IRA#1.

    If we recharacterize does this mean we already used on rollover allowed per year by IRS?

    Any other options? Please help.
    We have confirmed that the IRA#1 can be moved to new 401k via direct rollover.

    • ANSWER:
      It doesn’t matter what you’ve confirmed. As Woof stated, rolling anything into a 401(k) is almost always a bad idea. You lose options, control, and investment options. Consult a properly qualified financial planner or advisor who can help you wisely consider all available options. Most will do this at no cost.

36. QUESTION:
    Roth IRA Rollover from Inheritance. ?
    - I am inheriting around k from my Mom’s IRA. I intend to roll it into a Roth IRA.
    - I am a professional trader (yeah call it day trading, but that’s not the point of the question, please). I intend to shelter the gains on those trades in the IRA, so I don’t have to pay the tax right now.
    - I plan to take some distributions in a few years, well before retirement age.

    Does this make sense?As I understand it – If I took the inheritance as a lump sum distribution I would get the 10% tax hit now, plus have to pay capital gains on each trade I make. Whereas if I roll it into a Roth IRA, I can trade without capital gains, until I take the distributions in years to come, probably at the same 10% tax rate in the future – no EXTRA penalty, right?

    Ok Wayne is correct. Only a spouse can roll the money.

    http://www.schwab.com/public/schwab/investment_products/retirement/inherited_iras/faq?cmsid=P-2008538&lvl1=investment_products&lvl2=retirement

    Thanks for the answers anyway.
    Thanks, if I had time to read TWO books on the subject I wouldn’t be posting my question here. If you have actually read the books perhaps you could share your knowledge?

    • ANSWER:
      You should read “The Retirement Savings Time Bomb” and “Parlay Your IRA into a Family Fortune” by Ed Slott and consult with a CFA (Certified Financial Planner) before you “take possession” of the IRA. Doing that could save you thousands in unnecessary taxes.

37. QUESTION:
    401K rollover to Rollover IRA & ROTH IRA after tax dollars?
    I have a 401K from a previous employer which contains both Pre tax dollars and After tax dollars. I would like to rollover this 401K to my Rollover IRA (pre tax dollars) and my Roth IRA (after tax dollars). I believe the rules beginning 1/1/2008 allow this rollover to take place as a normal rollover, but I’m getting conflicting information from my source & target broker. Can anyone add any insight or clarify my understanding?
    THANKS
    Thanks Elizabeth… by normal rollover I guess I meant Direct Rollover.

    In your example I would end up with 4 accounts (2 pre tax & 2 “after tax”/Roth account)? couldn’t I then “rollover” 2 of the accounts (1 pre, 1 roth) into the other accounts (1 pre, 1 roth)?
    Sorry, I just spent time with my source and target financial institutions and I’m amazed but I’ve gotten various responses when trying to get this accomplished. I BELIEVE it can be done, but would like some “official” IRA document I can send to these 2 brokers.
    THANKS Again

    • ANSWER:
      what is that old saying ” you can’t get there from here” you can do what you want but it will take two movements to get it done == transfer the accounts into new accounts with the receiver and once he receives them than he can combine them!!!

38. QUESTION:
    Could losses on current investments be used to partially rollover IRA $ to Roth IRA $ without paying taxes?

    • ANSWER:
      Your capital losses can only be used to offset capital gains. An IRA rollover is ordinary income and does not include capital gains.

      If capital losses exceed capital gains, you may use ,000 of the loss to offset other income. This may include income from a rollover of an IRA to a Roth IRA.

      You pay tax on the rollover IRA at your regular tax bracket, when the amount of the rollover is included. If you offset your other income with losses, the tax on the amount of the rollover is reduced.

      But, as stated earlier, the rollover amount cannot be directly offset by capital losses.

39. QUESTION:
    Roth IRA – 401k Rollover Contribution Limits – will choose best answer?
    I have a total of three retirement accounts, and I need to make sense of how the maximum contribution limits apply to them.

    1) I have a Roth IRA, to which I make the maximum contribution each year. This year I have already deposited the maximum of 00.

    2) Totally separate from that account, I have a small 401k account with a former employer. I have left the employer, and they are forcing me to exit their plan. The balance on this account is only around 0.

    3) I just (today) opened a Bank of America Rollover IRA account. I opened this account for the purpose of receiving the funds from account #2, which I am being forced to exit.

    So the question is: if I rollover the 0 from my old 401K to the new Rollover IRA account, does this affect the contribution limits for my primary IRA account, the Roth? The Roth is my primary vehicle for retirement savings, and I don’t want to do anythat that reduces my ability to max it out. (And this year, it’s already maxed out).

    Thanks in advance. I will give 10 points for best answer.

    • ANSWER:
      As mentioned a rollover is not a contribution.

      It is usually best to do a direct trustee to trustee transfer to avoid any withholding or tax liability.

      But depending upon your ex-401k plan, they might give or send you a check (ours does if total is less than 00) in which case they would withhold 20% of the distribution (approx 0) towards taxes. But if you add that missing 20% back in from other sources when rolling it over within 60 days, there will no tax liability and you would get credit for the 20% withholding at tax time. If you do not add the missing withholding back in during rollover, that ~0 would be taxed and subject to 10% penalty (about another ).

40. QUESTION:
    Rollover to Roth IRA?
    Hi everyone. Currently I have a Roth IRA, Traditional IRA, and 401k. I’m only contributing to the Traditional right now because my current employer does not offer a retirement plan (they will soon). My wife has the same set of accounts but is contributing to her Traditional and company’s 401k.

    I’m considering:
    - rolling over my 401k into my Roth IRA
    - get rid of my wife’s IRAs and rollover that money into my Roth IRA just to consolidate our accounts.

    In order to rollover my 401k I think I may have to first roll it into a traditional IRA and then in 2010 rollover my Traditional IRA into a Roth IRA. Is my understanding correct?

    It’s also my understanding that I’ll have to pay taxes on the rolled over 401k money since it is pre-tax money but I can do that over 2 year (2011 and 2012) I think. Is that correct as well?

    And I guess my more general question would be: is this a wise retirement move for my wife and I?

    Thank you!

    • ANSWER:
      Yes, do roll over your 401(k) into a Roth IRA. There are 17 different types of fees that your plan administrator can charge to your 401(k) account without disclosing these to you. They are taken net of earnings, and over a 20-year time period could easily reduce your accumulated value by 50% or more.

      You cannot consolidate your wife’s IRAs with yours. They must be kept as individual retirement accounts. There is no such thing as a joint individual retirement account.

      If your household income is greater than 0,000, then you are correct about having to convert to the traditional IRA first. The income limits for conversion to Roth IRA are considerably lower than the income limits for contributing to a Roth IRA. In 2010, there is an exception, and you will be able to convert your traditional IRA to a Roth IRA regardless of your income.

      Yes, you will have to pay regular income tax on the conversion. If the market is still down six months from now, and there is a better-than-even chance that it will be, you’ll have picked a great time, taxwise, to convert. And, because of the special conversion rule in 2010, you don’t have to report conversion income in 2010. You can report it in equal amounts in tax years 2011 and 2012.

      The Roth IRA is almost always a better choice than the traditional IRA if you qualify for a Roth IRA. Taxes are likely to be higher in the future, so it’s to your advantage to contribute with post-tax dollars now and avoid the higher taxes in future years. And, if you’re young, most of the accumulated value in your Roth IRA will be from earnings, and those are never taxed (assuming you follow all the rules). Also, you are not required to take distributions from your Roth IRA at any age – another big tax benefit for you and your heirs.

      By the way, the IRS Publication is 590, not 940.

41. QUESTION:
    Can I rollover a roth ira into a different traditional ira account, both in the same name?

    • ANSWER:
      No.

      You have already paid taxes on the Roth contributions, and won’t be taxed on what you take out when you retire.

      A traditional IRA is funded with pre-tax money, then you pay taxes on the draws in retirement.

      You could move traditional IRA money to a Roth, but you would need to pay taxes on the money being transferred.

      You can’t get refunded the taxes already paid on the Roth money, and you can’t mingle pre and post tax monies.

      Why would you want to anyway? What you’re asking to do is to be taxed twice on the same money – going in and coming out . . .

42. QUESTION:
    Will I owe taxes if I move money from a Roth 401(k) to a Rollover Roth IRA?
    I contributed ,000 to a Roth 401(k), but no longer work for that employer. The 401(k) has earned ,000 and now has a value of ,000. I want to roll over the money to a self-directed Roth IRA.

    I contacted the custodian company for the Roth 401(k) and they told me that this would be a taxable event. Since the money is moving from a Roth account to a Roth account, I don’t understand why any portion should be taxable.

    I then contacted the company that would be the custodian for the new Rollover Roth IRA account, and they told me they didn’t think there would be any taxes involved. I’m not sure what to believe, and need to be sure before I initiate the rollover.

    Please tell me whether or not I will have to pay taxes, and what the taxable basis would be:
    a. No tax
    b. Tax on the ,000 earnings
    c. Tax on the entire amount
    d. Other calculation

    Thank you for your help
    –

    • ANSWER:
      you have to realize there are two Roth’s, one is the original IRA which gave you a tax advantage when you contributed and you would be taxed on it when you took distribution
      the other Roth is tax free at contribution and distribution once you have kept it for 5 yrs
      if you want to roll an 401(K) plan into an IRA that is like it–both reduce your income tax when you contribute you can roll one into the other within 60 days without any tax consequences
      however if you convert a reg IRA to the Roth, yes you have to pay the income tax on the conversion over a two year period

43. QUESTION:
    Rollover IRA to Roth IRA?
    Hi,

    I just switched amount in Rollover IRA to Roth IRA. I wanted to pay all the taxes upfront, but the teller representative suggested it’s not a good idea to do it now. Instead, she rollover entire 3K I had in Rollover to my Roth.

    What’s the benefits to doing this and when do I pay taxes? I’m only 24 and new to this retirement vehicles. I need to know what actions I must take to stay under the radar.

    Thanks!

    • ANSWER:
      You cannot pay all the taxes ahead of time because there is no sure way to know what they will be until you file your income tax return next year.

      Your only option for pre-paying taxes is to have withholding taken. But that means you cannot rollover the full distribution.

      The teller gave you good advice. Wait until you file your income taxes, and you will have an accurate amount.

44. QUESTION:
    Rollover IRA vs. Roth IRA?
    I have a rollover IRA, which was my 401K from my previous employee. It is not a small amount of money. My financial advisor suggested me to transfer it to Roth IRA and pay the tax now instead of pay the tax when withdraw at retirement. He said the tax bucket expected to be increased at retirement. What tax code should I pay to transfer from Rollover IRA to Roth IRA? Is it my regular tax bucket or 15% capital grain? Please give me some advice. Thanks a lot!

    • ANSWER:
      Transferring now from a Traditional (I think this is what you mean by rollover) IRA to a Roth IRA is a good idea, because the value of your account is probably as low as it has been in a while. However, as in the previous answer, all taxes will be due on that account at one time (I’m pretty sure it’s at your normal tax bracket). Sending it over piece by piece is a good idea if you can’t pay the tax bill right now.
      The idea behind a Roth vs. a Traditional IRA is this…hopefully you’re at a lower tax bracket now than you will be at retirement. When you’re retired and withdrawing from your IRA you should be living the good life…the better life you’re living means the more taxes you’re paying (in a Traditional IRA). If you have a long ways to go until retirement, switching makes sense. If you’re already near retirement age, the cost of the taxes may offset the benefits.

45. QUESTION:
    Is a conversion from a rollover IRA to Roth IRA considered a contribution? Which tax year do I pay taxes for?
    I opened up a Rollover IRA last week (Feb ’08) and rolled over my previous employer’s 401k to this new Rollover IRA. A few days later I opened up a Roth IRA and converted the money from the Rollover to the Roth. I have a few questions. Is this conversion considered a contribution? I know I have to pay taxes on the money I rolled over (because they came from a 401k), but do I have to pay it for my 2007 taxes or can I pay them for my 2008 taxes?

    • ANSWER:
      It is not a contribution. You will pay taxes on it for 2008. You will receive a 1099R for the rollover from the 401k to the IRA, and a 1099R for the conversion from the IRA to the Roth IRA, to be included in your 2008 tax return.

46. QUESTION:
    Is it better to rollover my 401k into an IRA, Roth IRA or my new employers 401k?
    I am about to leave my job for a new position. I am 24 years old and have about 5k in my 401k. Is it better for me to roll it over into an IRA, Roth IRA or into my new employers 401k program?

    • ANSWER:
      As an FA, I generally recommend an IRA rollover…more investment choices. Drawback…can’t take a loan from it but then again you really should avoid borrowing from your retirement savings.

      As for rolling to a Roth. It’s called a Roth conversion and is possible but you have to meet certain income requirements (<100K married or single) to be eligible. You will have to pay current taxes on it though.

      Good luck. feel free to email if you have any specific questions.

47. QUESTION:
    Will splitting my ROTH (after conversion from rollover IRA) IRA affect my ability to recharacterize it later?
    I had to roll over my Schwab 401k to a Schwab IRA recently (my employer got bought out), and now I want to convert half of the rollover IRA to a Schwab ROTH IRA. After converting to the ROTH, I would like to transfer a portion of the Schwab ROTH IRA to a Sterling Trust (precious metals) ROTH IRA. Do you know if splitting my ROTH up like this would affect my ability to recharacterize it later?
    What if I am paranoid about owning ‘paper gold’? If you can elaborate a little more on the “giant headache” caused by “transferring agents” it would be much appreciated. I might consider CEF as an alternative to buying physical.

    • ANSWER:
      I don’t think so from a legal/tax POV.

      However, from a practical POV you are setting yourself up for a giant headache by transferring agents before you decide whether or not to recharacterize. Just wait to transfer. Invest the money at Schwab in GLD. It will probably to better than the sterling trust investment in the long run anyway.

      (Not that I am recommending gold investments right now. I am actually in the process of going short as we speak)

48. QUESTION:
    Can you rollover a 457 to an IRA then to a Roth IRA?
    Since 457 is pretax I want to get it to a Roth IRA without any penalties

    • ANSWER:
      A rollover of a 457 plan to an IRA is allowed for government 457 plans. Check with your plan administrator to make sure. Not all 457 plans can be rolled over to another plan.

      The 10% penalty never applies to direct rollovers. Also, distributions from a 457 are not subject to a 10% early withdrawal penalty.

      So, no 10% penalty for you, for either the 457 – IRA or the IRA – Roth IRA rollovers.

      However when you do the rollover from the IRA to the Roth IRA you will pay income taxes on the amount rolled over from the IRA. You do not have to do the IRA – Roth IRA rollover all at once, you can do it over a number of years.

      Also, recognize that once you move your 457 money into an IRA, an early distribution from the IRA will result in a 10% penalty, which you would not have had with a 457 plan distribution.

49. QUESTION:
    401k rollover to roth ira?
    if someone wants to roll overtheir 401k into a roth ira?
    if someone wants to rollover their 401k into a roth ira their pretaxed 401k money will have to be turned into after taxed money durring the rollover to the roth ira. Is this money going to be taxed at the normal income tax rate for the individual so if you are in a 15% tax bracket would it be taxed at 15%. Or is it going to be claimed as ordinary income at the end of the year and taxed accordingly, in which case would be 50,000 salary plus 120,000 rollover would equal a taxable income of 170,000 which would equal a 35% tax bracket.

    The money needs to be put in a roth ira because the preffered tax deffered retirement vehicle is a matching 401k so a traditional ira is not a option as the 401k will be kept to receive the employer contribution

    • ANSWER:
      Many 401k plans only allow early withdrawal if it is for financial hardship purposes. An employer can determine its own definition of “hardship”, but many use “safe harbor rules” which allow withdrawals for the following reasons: 1) To pay medical expenses, 2) To cover down payment or to avoid eviction or foreclosure on primary residence, 3) To pay college tuition, and 4) To cover funeral expenses for a family member.
      You can not roll it directly to a ROTH. It has to go through a traditional IRA first. Spread out the Traditional IRA to ROTH IRA transfer over several years, just transfer enough each year so you can stay in your lower tax bracket.
      If you tell your company to send a check to you (instead of rolling it over directly to a fund family’s traditional IRA account) and you are under 59 1/2 years old, your company will take out 20% for withholding tax and 10% as a penalty.

50. QUESTION:
    Can I rollover a Roth IRA to an account that I can then use to buy stocks, mutual funds, ETF’s…?
    If so, how?
    can i also roll into a brokerage (sharebuilder, etc.) as well?

    • ANSWER:
      Log in to Fidelity get a rep on the phone…they will handle everything…tell them where your IRA is at and they can go get it !! You’ll have a ” self-directed” ROTH IRA in very little time. They handle about 95% of any paperwork.
      …and it’s a nice site to work with/ research/ etc after you get your account.