Consequences of liquidating old Roth IRA (can't contribute any more)

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.

I assume there will be tax consequences at conversion?

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

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 The $500 gain in your wife's ROTH IRA cannot be withdrawn without a tax penalty. Deposits can be withdrawn anytime with a Roth.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).

- 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

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.

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.

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 snipped-for-privacy@sbcglobal.net

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

[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]

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.

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.