| Traditional to ROTH IRA Conversion withdrawls |
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boblink
New Member
Cash: $ 1.10
Posts: 5
Joined: 13 Oct 2008
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| Traditional to ROTH IRA Conversion withdrawls |
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Hi, I am approaching retirement age and with the big market sell off, I am thinking about converting some assets from my Tradtional IRA account to a ROTH IRA and would like to know if ROTH IRAs have the same withdrawl considerations (i.e. you must start withdrawing at age 70 1/2) as Tradtional IRAs or since the money in your ROTH IRA is not going to be taxes, Uncle SAM does care what you do / when you do it, with your ROTH IRA?
Thanks,
Bob
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Mon Oct 13, 2008 11:59 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
Posts: 390
Joined: 05 Oct 2004
Location: Illinois
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Hello, boblink -
No, Roth IRA accounts do not have the same Required Minimum Distribution requirements as Traditional IRA accounts do. However, after a conversion, assuming that the account has not existed previously, there is a five-year restriction on withdrawals (to avoid the 10% penalty). See IRS Pub 590 for additional details on that provision.
Now, I'm wondering about the first part of your post - why does the market fluctuation of late have you considering a Roth IRA conversion? I'm just not seeing a connection between the one event and your thought for the conversion...
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Tue Oct 14, 2008 1:35 pm |
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boblink
New Member
Cash: $ 1.10
Posts: 5
Joined: 13 Oct 2008
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| IRA--->ROTH IRA |
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Thank you for the information Blankenship, I already have a Traditional IRA as well as ROTH IRA so I am not really concerned with the early withdrawal penalty as (and to answer your question), since I hope not to withdraw funds for a few years, I thought that the recent market downturn would be a good opportunity pay taxes on my IRA investments and allow them to grow "tax free" until I am ready to withdraw them. If I leave them in the Traditional IRA, they will (hopefully) grow but the withdraws will being taxed. I have to do the tax calculations but I my thinking is that I might be better off rolling them over to a ROTH account, paying taxes on them today and then withdrawing them when needed tax free than letting them sit in the Traditional IRA account, hopefully appreciate and then paying taxes on the "appreciated" value of the assets. The major assumption that I am making is that they will be worth (considerably) more in a few years than they are worth today and that the incremental tax bracket wouldn't be significantly lower when I plan to withdraw the funds than it will be at the end of the year (when I will need to pay taxes on the roll-over). This is just something that I am contemplating so I would appreciate if you would please be Devils advocate and point out the flaws that I have overlooked / am missing? Thanks, Bob
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Tue Oct 14, 2008 3:14 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
Posts: 390
Joined: 05 Oct 2004
Location: Illinois
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Sounds like a well-thought-out plan, boblink. And you're probably right, now would be a very good time for a conversion if you're planning one anyhow - given likely appreciation in values from the present.
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Tue Oct 14, 2008 3:48 pm |
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efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
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Note that while any IRA "contributions" have to be cash, IRA to Roth IRA conversions can be done "in kind" (transferred without cashing them out) if the same investments are available in both accounts. The dollar amount would be closing price the day of transfer.
I am gradually converting my IRA to Roth IRA at the rate of about $10k/year with tax covered by W-4 withholding adjustment, while 401k contributions keep me from bumping into a higher marginal tax bracket.
The only problem with trying to time transfer on a dip is determining if it is a dip or a slide. For example I am glad I sold WM at over $40.00 when it started to roll over instead of watching it slide to $2-4.00. But I wish I had held off transferring a mutual fund earlier this year.
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Wed Oct 15, 2008 5:12 am |
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