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How to simplify my IRAs?


I have 12k in a roth ira and 12k in a traditional IRA. I am no longer eligible to contribue to roth since my income is over 150k/year. So I just contribue after tax dollars to the traditional ira. Is there a way to merge my roth ira into the traditional ira? It is such a nuisance to have to keep track of the roth. Every year I always forget why I can not contribute to it and what's the difference between it and the traditional.
Reply to
Homer Simpson

Homer Simpson writes:
You may contribute (whether deductible or not depends on your income and whether you have an employer-provided plan at work) to your traditional IRA.
You may roll over assets from the traditional IRA - as much as all of it - to the Roth IRA. When you do so, you'll need to pay income taxes on the amount you roll over (to the extent that the amount you roll over was deductible and earnings -- you don't pay taxes on the part which represents non-deductible contributions to a traditional IRA).
This may be messy. But if you have $150k income, it's likely that you can afford to pay the income taxes necessary to do that rollover.
If there's more to your story (ie. you have other IRA accounts you aren't mentioning, etc), it may be more complex.
But the bottom line is that there's a path from traditional -> Roth IRAs (and a path the other way only for undoing conversions). And there may be substantial long-term benefits to getting more of the assets into the Roth if you can, particularly if you can pay the taxes due on the conversion from outside cash.
Unfortunately, due to the way the current rules work, even if you rolled the entire traditional IRA into your Roth, next year when you want to make another IRA contribution, if your income is too high, you'll have to contribute it to the traditional one (maybe even establish a new traditional one if you'd disposed of the entire old one) and then do the rollover again. If your income is too high, you cannot contribute directly to the Roth. But as of this year, the income cap is gone which limited conversions from traditional to Roth IRAs after having made the traditional contribution. So now there's something of a back-door to making Roth contributions.
If you have little in the way of existing deductible IRA contributions, the back door has little downside - you make a non-deductible contribution, then you roll it over. But if you have substantial existing deductible IRA assets, if you make the non-deductible contribution, you cannot just roll that part over - what you roll over will incur additional taxes you'd otherwise have continued to defer.
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Reply to
BreadWithSpam

Eventually, after you retire, everything can be converted and merged into a single IRA. You can pay tax at conversion, or track a basis (already taxed) in an IRA. Not so easy before formal retirement.
Several presidents and other politicians have advocated a single "tax advantaged" account for retirement, college, medical, etc. Everything we have now, but together. But I guess the politicians are trying to impress voters with seemingly lots of tax benefits by keeping this scattered among a dozen accounts.
Reply to
rick++

The problem is most people end up doing nothing because they don't understand all these accounts. Furthuremore, people are afraid of doing the "wrong" thing and facing unknown consequences. End result, nobody invests in them...
Reply to
Homer Simpson

Modern life is probably overly financially complex. I've helped three acquaintances with their financial affairs in fatal illnesses in the past decade. its a real rabbit-chase to find all their accounts. That prompted me to inventory my own situation; I have over forty accounts that require between annual and weekly attention.
Reply to
rick++

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