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.
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
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.
Plain Bread alone for e-mail, thanks. The rest gets trashed.
Are you posting responses that are easy for others to follow?
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
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...
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.