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Google Asks About Roth IRAs

Google Asks Jim will now be a fictitious series of questions and answers where I, personal finance novice, answer the questions that come in the referrer tags from Google search. In this edition, I hit up six Roth IRA related questions that showed up this week (and were interesting enough to answer).

Can a husband and wife both have a Roth IRA?
Of course! It basically works the same as when you’re an individual except your income phaseouts for 2007 are $156k to $166k if you’re married filing jointly and less if you’re filing separately.

Does a transfer from a Roth IRA to a SEP IRA count as a contribution?
Hmmm… this is an interesting question because I’m not sure a transfer from a Roth IRA into a SEP-IRA is something that makes much sense in the first place. You’ve already paid taxes on the Roth IRA contribution and the SEP IRA is just like a Traditional IRA from a tax perspective… so to withdraw it from a Roth IRA, presumably tax free, and then put it into a deferred tax investment vehicle, the SEP IRA, would be counter-productive. I wouldn’t even consider moving it from a Roth to a SEP, am I missing something?

How do I calculate the Roth IRA phase out contribution?
From my past article on Roth and Traditional IRA contribution limits [3]:

The Roth IRA income phase-out is linear, so if you are Married Filing Jointly, under 50, and your total income were $161,000 (2007), you are permitted to contribute $2,000 (nice catch guys!) to your Roth IRA. There are two special cases though: 1) when calculating your limit, round up to the nearest $10; 2) If your limit is under $200 but still positive, round up to $200.

Does it cost anything to change a Traditional IRA into a Roth?
Yes, you have to pay the taxes on the amount you convert from a Traditional IRA to a Roth IRA. Until 2010, you have to earn less than $100,000 a year in order to convert a Traditional IRA to a Roth IRA. When President Bush signed into law the Tax Increase Prevention and Reconciliation Act of 2005, it removed that requirement in 2010 making it possible for everyone and anyone to do the conversion. (more on the 2010 IRA conversion loophole [4])

Can I open a Roth IRA if my employer offers 403b?
Yes, you can open a Roth IRA as long as you are permitted based on the income limitations [3]. In fact, you can open a Roth IRA if your employer offers a 403b, 401k, SEP-IRA, Keogh, etc – it’s totally independent. Now, if your employer offers any of those plans, your ability to deduct contributions to Traditional IRA’s is severely limited.

Can I contribute to Roth IRA and IRA?
You can contribute to a Roth and any other IRA at the same time but they share contribution limits, that means you can put a total of $4k into IRA accounts. So, if you put in $2k into your Roth, you can only put $2k into Traditional, and $0 into a SEP-IRA. If you put in $1k into your Roth, you can put $3k into Traditional. As long as the sum is under that year’s limit and your contribution limit, you’re good. You just can’t go over the annual limit.