Converting to Roth IRA

Questions on 401k conversions, partial conversions, non-deductible traditional IRA, paying taxes with funds from Roth IRA, converting to multiple Roth IRAs

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Answers to a dozen frequently asked questions regarding conversion to a Roth IRA

7. Can I take my 401(k) and convert it to a Roth IRA like I can a 401(k) rollover to an IRA?

Powerpoint slides on a superior retirement planning strategy called Roth IRA on Roids which allows for tax-free distributions, tax-free growth, guaranteed principal and guarateed death benefits.This is possible. As long as the plan participant is eligible to take a distribution from the plan and the funds are eligible for a roll-over, then a 401(k) can be converted. In addition, so can 403(b) and 457 plans. It is recommended you check to see whether your current plan will allow in-service distributions. This will make those funds convertible now instead of having to wait until you stop working.

8. Can I do a partial conversion?

Yes. You can determine how much of your traditional IRA you wish to convert.

9. What if I have a non-deductible traditional IRA?

You will now have to consider the total value of all IRAs when converting. For example, if you have $500,000 in four accounts, and one has $50,000 in after-tax contributions, you will only be taxed on 90% of the amount converted.

10. Paying your taxes with funds from your IRA account

Some people will say that it is okay to use funds from your IRA account to pay the tax bill that is due. Other people say this is a bad idea. Using your funds from your IRA account to pay for taxes is not recommended because if you choose to undo the conversion, all funds that were taken from the IRA that were used to pay the taxes cannot go back into the account when it is recharacterized. You would want to recharacterize the account for several reasons including if the account lost significant value between 2010 and 2011.

11. Can you convert to multiple new Roth IRAs rather than just one?

Yes, you can do this. It is best to consider converting to separate Roth IRA accounts that do not contain any other funds from other IRA accounts from prior years. It is best to convert to more than one Roth IRA and it is recommended that the conversion is to multiple Roth IRAs that each hold a different type of investment. This will make it easier to undo the conversion if the particular investment does not work out. This is an opportunity to take the losing IRA out of the picture in order to qualify for a lower tax bracket. Doing so will leave the winning IRAs growing, which will eventually create tax-free profits for you later in life.

12. When to convert some of your traditional IRA in 2009?

This is a common question, and a good one. If you believe that your tax bracket in 2009 will be lower, it may be a wise idea to begin the conversion this year. Keep in mind; you do not have to convert the entire amount in the traditional IRA. You may do a partial conversion this year and then convert the rest in the next year.

If you still have questions regarding the Roth IRA conversion process, consult with a professional or contact us at BestIRARescue. Financial professionals will be able to help you determine if the conversion will be in your best interest. They will also have the answers to any other questions that were not presented here.

To read the Roth IRA conversion FAQ 1-6:Roth IRA conversion FAQ: 2010, 2011, 2012

Rocco Beatrice, CPA, MST (Master of Science in Taxation), MBA (Master of Business Administration), BSBA (Management/Accounting), CWPP (Certified Wealth Preservation Planner), CMMB (Certified Mortgage Broker), CAPP (Certified Asset Protection Planner), Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an asset protection, award-winning trust, estate planning and tax expert.

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