Pedro <pedro[at]noreply.com> writes:

[wants to convert trad IRA to Roth]

- quote -

No. Conversions are strictly tied to the calendar year. Do
a conversion on or before 31 Dec, it's taxed to that year.
Do it on or after 1 Jan, it's taxed to that year.

- quote -

Just split the conversion into two.

Let's say you want to convert $20,000. Convert $10,000 in
December and $10,000 in January. Then $10,000 goes on your
2005 return and $10,000 will go on your 2006 return.

- quote -

No, it doesn't. However, if it is directly deducted from
the account, you can't make it up either. In other words,
let's say you make the max contribution and then they deduct
a $40 fee from the account. You *cannot* put in another $40
into the account to make it up. That would be considered an
excess contribution. However, if the $40 is paid from
outside the account, you can still make the full $4000
contribution -- you're not limited to $3960.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"Pedro" <pedro[at]noreply.com> wrote:

- quote -

No Unlike contributions, conversions affect only the year
in which they're completed.

- quote -

No

- quote -

I suspect you don't understand fully how "going into a new
bracket" works. It doesn't mean that everything gets taxed
at the higher rate, it just means that the amount over the
lower bracket's limit gets taxed at the higher rate. Since
we're not talking about much money I suspect if you sit down
and actually run the numbers you'll find that, after
considering the fees, it will be cheaper for you do just
convert the whole thing this year.

- quote -

No, if you pay it from funds outside the IRA. If you just
let them deduct it from your IRA you can't repay it (in
addition to your maximum contribution).

--
Phil Marti
Clarksburg, MD

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Pedro wrote:

- quote -

A conversion is dated by the date of WITHDRAWAL of the
traditional IRA. You then have up to 60 days to complete the
conversion to the Roth IRA. So, if you make the withdrawal
in December, it becomes a 2005 conversion. If the withdrawal
is made in January (or later) it is a 2006 conversion.

Or is there someway to
- quote -

Nothing I can think of. It seems you are stuck making TWO
withdrawals in separate tax years to get the benefit of
splitting the income. The traditional IRA must be quite
small if half of it would invoke a low-balance fee.

Actually, there is one scheme you could follow (top of my
head thinking) that might accomplish your goal. First,
withdraw the entire account from you custodian prior to
December 31, 2005. That avoids any low-balance fees and gets
the funds away from this greedy custodial brokerage as soon
as possible.

Second, open your new Roth IRA account and deposit half the
funds within 60 days. For the other half of the funds, open
a new traditional IRA account with a custodian of your
choice. Transfer of these funds must also be completed
within 60 days. This second transaction is tax-free.

Third, sometime later in 2006 withdraw or transfer the
tradition IRA #2 funds into your Roth IRA. This will be a
taxable transaction for 2006. Close the traditional IRA #2.

End result: You have made one withdrawal from the brokerage
and created taxable income in two tax years. Would that work
for you?

- quote -

Good, otherwise you will pay a penalty for using the IRA
funds to pay the taxes.

- quote -

No, it does not, and the fee is not deductible unless you
itemize deduction and pay the fee from funds outside the
IRA.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

I have a traditional IRA that I would like to convert to a
Roth IRA because my income is so low these next few years.
However I can only afford to convert half of the account in
any given year, otherwise that conversion will push my
taxable income into the next bracket. Additionally my broker
charges a transfer fee, as well as a low balance fee (the
total amount is above the low-balance limit, but if split
into two accounts, each half falls below the limit), so
there is incentive to convert the entire amount at once.

Can I convert the entire balance between Jan 1.-Apr. 15,
2006, and therefore divide the conversion into 2005 taxable
income and 2006 taxable income? Or is there someway to
carry over the second half of the conversion to next year
(similar to how capital losses exceeding some amount are
carried over year-to-year)? Or do you know of any
other/better way to convert the entire account at once (on
the brokerage end) while spreading the taxable income over
at least two years?

Btw, taxes will paid from a separate account.

And one last thing... Does an account maintenance fee count
toward my yearly contribution limit to a Roth IRA. (This is
aside from my conversion.) I do not itemize deductions.

Thanks so much,
Pedro

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >