Mark's right on target. Pub 590 is the place to be reading. As long as
you have an employer sponsored plan and your AGI is above 160K your
spouse can contrib to an IRA, but its not deductible.

Bread also made a very valid point earlier. Seeing a charge for $10.00
on your annual statement might aggravate you, but it is only 1/4 of 1%
(25bps). And that will decline with account growth. If you took two
identical accounts with 4K in them and grew them 8% a year, but one had
a $10 fee and one was free, the difference in the two account balances
would only be about $400 - TWENTY YEARS FROM NOW!
The opportunity cost of research, education, decision, and trasfer
execution are almost assuredly not worth the savings.

If both you and your wife have employer sponsored 401(k) plans, what
about the new Roth 401(k)s that are now being offered? You cannot roll
your roth into a roth 401(k), but if your employer offers roth 401(k)
you can contribute to it. It all depends on your retirement outlook.
Higher retirement tax bracket, go Roth; lower retirement tax bracket,
go pre-tax contribs. Remember to account for loss of tax deductions and
government policy shifts when deciding which route to go.

<deja_bhoot2000[at]yahoo.com> wrote in message
news:1164653671.672336.238490[at]j72g2000cwa.googlegroups.com...

- quote -

Wrong. "If either you or your spouse was covered by an employer retirement
plan, you may be entitled to only a partial (reduced) deduction or no
deduction at all, depending on your income and your filing status."

IRS Pub 590: http://www.irs.gov/publications/p590/ch01.html#d0e2003

In particular, see Table 1-3 in this section of the Pub. The deductibility
rules are as I wrote my previous post.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

deja_bhoot2000[at]yahoo.com wrote:

- quote -

This is as clear an explanation as I've seen.
http://www.fairmark.com/rothira/expand.htm

But as I posted elsewhere in this thread, be aware that any money
converted is prorated between pre and post-tax money within the IRA
conversion.

JOE

Mark Freeland wrote:
- quote -

A number of people pointed that the eligibility rule is the same for
both spouses. I understand this.

My point is that when my wife stops working, our AGI will drop by about
70K to 90K, and that would being us under the 160K phase out. Unless I
get some big raises in the mean time

If my wife stops working, and even if our combined AGI is more than
150K, I think she can contribute to the traditional deductible IRA,
since she will not have a 401k. Right or wrong?

rick++ wrote:
- quote -

Rick,

Could you elaborate on this provision a bit? Is this part of some new
legislation? I was only aware of the following scenarios.

1. Traditional, deductible IRA -- we don't qualify due to both having
401ks (we max.)

2. Roth IRA -- we don't qualify due to the modified AGI being > 160K

3. Converting 401 or regular IRA to Roth -- income limit is only 100K

4. Contributing to traditional, NONDEDUCTIBLE IRA, and then convert it
to Roth -- not possible due to item 3 above.

5. Contributing to traditional non deductible IRA -- we qualify, but
not much benefit. Contribution is non deductible; alll gains will be
eventually taxable (although tax deferred). All money tied until age
60.

I have instead, contributed to a bunch of DRIPs, which have grown total
about 110K over the past 8 years. I have to pay some taxes on
dividends, but that is not much, and money is not tied to age 60.

Are you telling me that I could contribute as 4K/per spouse / per year,
let it accumulate until 2010, and convert all of it to Roth at that
time?

rick++ wrote:
- quote -

I don't think that solves the OP's problem, which is two IRA accounts
with fees. Converting will sitll give him two accounts with fees.

deja_bhoot2000[at]yahoo.com writes:

[deposited $4k/each into Roths a few years ago, now make too much
money to add to them, getting hit by $10/yr fees and thinking about
closing them down]

- quote -

Tax (and penalty) consequences: You pay income taxes and a
10% penalty on any *growth* in the value - any value above
the $4k/ea you put in.

The bigger consequences: Loss of future tax-free growth -
which is even *more* valuable to you now that you're in a
higher tax bracket.

The costs of leaving it where it is: $4k account, $10/yr
fee -- 1/4 of one percent - 25 basis - and as the account
grows, that ratio drops. It's a little annoying, but in
the long run, the tax-free growth will trump that hugely.

I'd leave it where it is.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

deja_bhoot2000[at]yahoo.com wrote:
- quote -

Why not move them to your credit union? Most credits unions don't
charge any annual fees on IRAs, and have low minimum required balances.

John Cowart

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message
news:KpI9h.2839$ql2.676[at]newsread3.news.pas.earthlink.net...
- quote -

The difference between Fidelity and Vanguard regarding low balance fees on
index funds is that Vanguard allows you to open an account at $3K, and
charges a fee up to $10K balance, while Fidelity won't even allow you to
open the account until you hit $10K.

But if your balance drops below $10K, Fidelity charges you a $10 fee - the
same as Vanguard.
See, e.g.
http://personal.fidelity.com/product...html?315912204
footnote 5 ("$10 if balance is less than $10,000").

The OP was using Vanguard Growth Index, that tracks a custom large cap
growth index Vanguard had MSCI design for more efficient funds. AFAIK there
is no other family tracking the MSCI domestic indexes.

Finding an open end fund tracking any other large cap growth index is
difficult - there's TIAA-CREF Large Cap Growth Index, Retirement Class for
IRAs tracking the Russell 1000 Growth index, but nothing else I know of
available at the retail level.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

<deja_bhoot2000[at]yahoo.com> wrote in message
news:1164384748.430277.295340[at]f16g2000cwb.googlegroups.com...
- quote -

If you're married filing jointly, then your spouse's eligibility is no
different from your own - that is, if your MAGI is over $160K, neither you
nor your wife will be able to contribute. If you're under, then you both
can.

If you're married filing separately, your spouse will be able to contibute
only to the extent that her MAGI is under $10K. And she will not be able
to contribute more than SHE earns in wages (compensation).
http://www.fairmark.com/rothira/phaseout.htm

- quote -

Reduce the statements to annual by having telling Vanguard you'll accept
online statements for the quarters. Since Vanguard statements are
cumulative, YTD, you don't need anything but the final year end statement.
This is the way I handle my IRA with them.

I am confused about your statement that high Vanguard balances don't get
fees waived. On the page for Roth IRA fees, Vanguard shows the $10 fee for
low index fund balances waived for Voyager (and Flagship) customers, and the
$10 IRA fee is waived for customers with over $50K in assets.
https://flagship.vanguard.com/VGApp/...eesContent.jsp

- quote -

The good news is that if you close ALL your (not necessarily your wife's)
Roth IRAs, and you have a loss, you can take a loss on your tax return. The
bad news is that it is a miscellaneous itemized deduction (subject to a 2%
exclusion), not a capital loss.
http://www.irs.gov/publications/p590/ch02.html#d0e10515

The $500 gain in your wife's account will be taxed as ordinary income and
subject to a 10% penalty unless she is over 59.5 when the distribution is
made. That is, if the distribution is not qualified (not 59.5 or meet some
other exception), then the part that wasn't taxed is treated the same way as
if it were withdrawn from a traditional IRA - taxed upon withdrawal, and
possibly subject to 10% penalty if under 59.5.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

- Keep both Roth IRAs, for the tax advantage, and because
one cannot say how tax law will change. The Roth IRA is a
great deal, tax-wise.

- Move them both to a company like Fidelity, having index
mutual funds with minimums that do not incur a fee.

- Review your portfolio allocation, using free tools such as
those linked at
http://home.earthlink.net/~elle_navorski/id8.html. Adjust
your Roth IRA as fund options permit and so as to meet your
allocation goals.

If you insist on closing your Roth IRAs, you will owe no
tax. Your wife will owe a 10% penalty on the excess over
$4000. Page 43 of the 2005 Form 1040 instructions, referring
to line 60, discusses the form you need to pay the tax
penalty. Should be similar for 2006. You/your wife will also
pay your regular income tax rate on the excess over 4000.

deja_bhoot2000[at]yahoo.com wrote:
- quote -

Check with a tax professional... but I'd think your Roth can be
liquidated without penalty. The $500 gain in your wife's ROTH IRA
cannot be withdrawn without a tax penalty. Deposits can be withdrawn
anytime with a Roth.

I would second the advice below to contribute to a Traditional IRA. If
you are covered by a 401k plan at your employer, the contributions will
be "post tax" (no deductions). You would pay no tax on gains/
distributions at the time of the distribution. Withdraws in retirement
would be at ordinary income tax rates.

If there is ever a year which your income decreases, OR if the laws
around a Roth conversion change (there is pending legislation), then
convert the traditional to a Roth. The advantages of a Roth- no
mandatory distributions, withdraws are not taxed.

My advice would be to contribute as much money to tax advantaged
accounts as possible. If you are above Roth income thresholds,
consider maxing out 401k plan, using a traditional IRA and having a
taxable brokerage account (capital gains in this account might be taxed
less than withdraws from a traditional IRA).

Chris Cowles wrote:

- quote -

The pretax deposits, if any, will be taxed, along with any growth.
If one starts now, 2006-10, there's $20,000 of post tax deposits (if
under 50) and only the growth is taxed to convert to a Roth.

The 'got ya' is that you can't seperate post and pre tax IRA money to
only convert post tax. i.e. as others have pointed out, you have ONE
IRA, containing pre and post tax deposits. So for some with large
pre-tax IRA balances, this isn't a great deal. For them, there's the
chance their 401k can accept all the pre-tax IRA, and leave only post
tax money. That would be a slam-dunk for converting to a Roth.
JOE

"rick++" <rick303[at]hotmail.com> wrote in message
news:1164390358.302063.90370[at]l39g2000cwd.googlegroups.com...
- quote -

I assume there will be tax consequences at conversion?
--
Chris Cowles
Gainesville, FL

In 2010 and 2011 you'll be able to convert an ordinary IRA to a Roth
without
an income limitation. So you could park in an ordinary IRA now with
thought
to the future.

My spouse and I contribuited $2000 each to our Roth IRAs in 1999 and
again in 2000. Uufortunately, starting with 2001, based on AGI, we
have been completely phased out from any further contribution to these
accounts.

With time, our AGI has only increased -- I am not complaining about
increase in our salaries :-) I don't foresee ever being able to
contribute anymore; spouse will be eligible if and when she quits
workforce (might happen in a few years).

Both accounts generate $10 fee / per account / per year (unavoidable,
even with high balances at Vangaurd in other accounts), and 8 set of
additional statements each year (once per quarter, due to dividend
distribution, per account). All in all, a nuisance for such a small
investment.

So, I am thinking of liquidating both accounts: mine has a small loss
-- the original 4K, invested in Gorwth Index, with all dividends
included, is about $3700 now. Spouses's original 4K, invested in S&P
500 Index, is worth about $4500 now.

What are tax consequences of closing these two accounts? Do we have to
report it on 1040? Schedule - D? No where? Any other consequences?

Bhoot Nath