Comments on: Roth IRA Workaround: 2010 Conversion Limit Loophole

By: virginia

virginia — Tue, 08 Mar 2011 03:30:33 +0000

pretty limited thinking that a roth is greatest vehicle. read quotes from roth conversion experts who do not even convert much of their own IRA’s to Roth.

By: Stephen

Stephen — Fri, 19 Mar 2010 02:08:28 +0000

I am self employed and have a SEP with a value of 800,000. I want to roll it over into a Roth IRA, but can I contribute my 44,000 for 2010 before I convert it.

By: Steve

Steve — Wed, 17 Mar 2010 19:41:25 +0000

You can contribute directly to the Roth since your AGI is low enough. No need to go the conversion route.

By: tb702

tb702 — Sat, 06 Mar 2010 06:06:57 +0000

Can I contribute to a non-deductible IRA only for 2009 even though I qualify to make a deductible IRA then do a conversion to Roth. I do not have anything in an IRA, just 401K with my current employer. Gross income for 2009 is about 63k.

By: Dwight

Dwight — Sat, 23 Jan 2010 07:14:42 +0000

Joe,

I have a slightly different situation. I have approx. 20k pre-tax and 20k after-tax in Traditional IRA’s. I also have approx. 200k in after-tax and 200k earnings (pre-tax) in a 401k. The 401k is with Fidelity and they indicate that I can convert the after-tax portion of the 401k to a Roth IRA, and the pre-tax portion to a Tradiional IRA. (They indicated that the pre & after tax portions had to come out together.)

What I would like to do is to first convert all of my IRA to a Roth (20k gross income) and then convert the 401k. Do you see a problem with the pro-rata rule if I do both of these in the same year? Or can I for example do the 40k IRA conversion, say in Feb. 2010 (20k taxable)and then in March do the 200k Roth, 200k Traditional conversion from my 401k? I’ve asked several sources and haven’t received a satisfactory answer. Thanks.

By: joe

joe — Wed, 02 Dec 2009 20:25:50 +0000

Jim,

You do not include your spouses. They are seperate. When you convert a portion of your IRA to a Roth, all of YOUR IRAs are considered for percentage of basis that is excluded from gross income.

If your spouse converts some of her IRA, same thing.

One trick is to move all your money into an employer sponsored QRP which will leave only your deductible monies left to convert tax free. The problem is then you cant get the money back out of the QRP until you have a triggering event.

I am CPA and specialize in this stuff. Accountants normally are not aware of the complexity of these rules. Email me if you have any questions.

jc24m1@gmail.com

By: Jim

Jim — Tue, 12 May 2009 16:21:12 +0000

Is the pro-rata allocation based on your IRAs ans SEPs, or do you have to include your spouse’s?

By: My Dollar Plan

My Dollar Plan — Wed, 10 Sep 2008 02:21:09 +0000

Jim,

We’ve been using a conversion strategy over the last 10 years to move money every other year. You do need to consider all accounts as one like the others said and treat it pro-rata.

However, there is a strategy where you can move your deductible IRA money to a 401k if you have one and it allows such a transfer. Leave only the after-tax money, and then convert it.

By: Nicole

Nicole — Tue, 09 Sep 2008 19:48:37 +0000

Jim-

Yes, I just wrote an article about this on my blog today. All IRA monies must be converted pro rata unfortunately. It also includes a couple work arounds…not sure how helpful it will be to your situation specifically.

http://daseducation.wordpress.com/2008/09/09/when-converting-a-traditional-ira-to-a-roth-ira-in-2010-beware-of-the-glitches/

By: Nicole

Nicole — Fri, 05 Sep 2008 16:11:30 +0000

I do not qualify for a roth, so I started contributing to a non-deductible IRA in 2006. I plan to convert to the Roth in 2010. Fortunately, I do not have any traditional IRAs so i do not have to worry about the pro-rata allocations. I did read about that when I was researching this issue a couple of years ago, but I have to admit i don’t completely understand it.

By: jim

jim — Wed, 03 Sep 2008 19:28:06 +0000

Hmmm I’ll have to check back with my accountant to see if we had a misunderstanding. I appreciate all the research you did, I’ll let you know what he says.

By: cmfalken

cmfalken — Wed, 03 Sep 2008 18:51:36 +0000

Jim, I did a bit more research and tried to post a comment with a couple links to articles that showed that you DO need to allocate non-deductible and deductible IRAs (including SEPs) on a pro-rata basis (regardless of whether they are separate accounts), but I think the urls were causing my comments to be blocked. If you google “roth ira conversion 2010″, some of the first few articles do mention this. Just want to make sure you know in case it changes your plans. Thanks.

By: cmfalken

cmfalken — Wed, 03 Sep 2008 18:42:34 +0000

Jim, take a look at the article from Nickel: http://www.fivecentnickel.com/2007/10/18/look-before-you-leap-roth-ira-conversions-in-2010/

Or look at example #3 here: http://www.money-zine.com/Financial-Planning/Retirement/2010-Roth-IRA-Conversions/

I also checked a couple other places, and it looks like you need to allocate deductible and non-deductible on a pro-rata basis.

By: jim

jim — Wed, 03 Sep 2008 18:04:41 +0000

My accountant told me that putting them in a separate account will be sufficient for that purpose…

By: cmfalken

cmfalken — Wed, 03 Sep 2008 16:50:49 +0000

You may want to doublecheck the rules, but I thought that when you convert, even if you have separate IRAs, you need to allocate a percentage of your conversion as deductible that matches the percentage of ALL of your IRAs that are deductible. Maybe it’s different with a SEP, but as I understand it, if you have a deductible IRA that is $80,000 and a non-deductible IRA that is $20,000, if you want to convert $20,000 to a Roth, $16,000 (80%) needs to be considered deductible. Again, I may be wrong and/or the case may be different with a SEP, but that’s how I remember it.