It’s possible to separate the cream from the coffee – making a tax-free Roth conversion from mixed contribution IRA.
conversion
A Tax-Free Roth Conversion Question of Timing
Fern Overgrowth (Photo credit: MightyBoyBrian) We’ve discussed here in the past about how it is (at least under present law) a perfectly legal maneuver to make a non-deductible contribution to a traditional IRA and then at some point later convert the same contribution to your Roth IRA (see Is it Really Allowed? for more). If you have no other IRA accounts, this conversion to Roth can be a tax-free event, especially if there has been no growth or gains in the investments in the account. However (and there’s always a however in life) I recently came across a situation that was sent to me by a reader, where he wanted to do such a conversion, but he also wanted to rollover some money from his 401(k) plan into an IRA. The question is in the timing – understandably, if he does the conversion from the traditional IRA to the Roth […]
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Roth Conversion/Recharacterization Strategy
Image via Wikipedia 1/1/2018 Note: Recharacterization of Roth conversion is no longer allowed as of tax year 2018. The last tax year that you could recharacterize Roth conversions is 2017. See Roth Recharacterization is No Longer Allowed for more details. If you have an IRA you probably know about the concept of a Roth IRA conversion – where you take distribution of a portion of your IRA and directly transfer that money into your a Roth IRA, paying tax as you go. Then the Roth IRA can continue to grow tax-free (as Roth IRAs do) and you’ll never owe tax on your qualified distributions from the Roth IRA. In addition, if the investments you’ve made in the Roth IRA have lost money, before October 15 of the following year you have the opportunity to recharacterize your Roth conversion. If you didn’t recharacterize, you’d be paying tax on a conversion amount […]
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