2010 Roth conversion window Q

Without going into details you have one Traditional IRA, which includes the rollover account, any account that was funded with nondeductible monets, and other traditional accounts.

Any conversion or distribution involves a fraction of your nondeductible contributions regardless of which account is distributed or converted. Form 8606 is used to calculate the nondeductible portion of the distributon or conversion.

I wish to comment on the above rather than your main question.

Yes, the only downside is it cannot be placed back into an employer plan. This includes plans set up for the self-employed, including

401(a) plans. The inability to do this could have a significant downside if, for example, you later want to qualify for certain government programs such as SCHIP, or possibly, Medicaid. This may seem like a remote possibility to many but financial circumstances can change and I think it's reason enough to not commingle employer plan money with other monies.

Steve

If you need another reason, the IRA may be partially protected in a bankruptcy action, while a qualified employer plan offers unlimited bankruptcy protection.

Good point. (Actually non-qualified plans cannot be attached either. That is why O.J. Simpson could never be made to pay out on a civil judgement -- everything he's got is deferred compensation.)

Steve

My understanding is that the income limitations for conversions will cease to exist for years 2010 AND AFTER. It's just that 2010 is the only year where a conversion's resulting taxes can be spread over two years (2011 and 2012).

Am I correct?

Correct.

The Conduit IRA went the way of the dodo with the passage of EGTRRA 2001. It made portability almost universal.

BAPCA (the bankruptcy act of '05) gives full protection to contributory IRAs that are

Solo 401(k) plans are not mentioned; can these also be the target of such a rollover? (They may not have existed yet in 2001.)

This would vastly simplify things, as well as giving you a chance to protect more of your money. (Although, tort law doesn't permit creating a trust after the fact, so it may not protect these assets in bankruptcy if they are assets rolled over after the liability was incurred.)

Steve

Back to this topic - If one is employed, with a 401(k) plan that allows incoming transfers, *and* the offering is acceptable, one has the unique opportunity to game the system. Transfer all funds that are not the post tax 8606-tracked funds into the 401(k). Now all IRA funds are post tax. One can convert it all to Roth in 2010 regardless of income, with no tax due.

(note - if the 401(k) has fees that are above some X%, the benefit of this is quickly wiped out. Some plan's S&P index have fees lower than I've seen in any ETF or Index fund.)

Joe

I am not seeing the point here. One can only transfer funds that are already in a retirement plan or IRA into the 401(k), true?

It is correct that some 401(k)'s have as investment options commingled funds which have lower fees than similar mutual funds. This is because the commingled funds do not have to track capital gainstand similar tax events. But we're talking a fraction of a percent or so.

Steve

Steve, you have $200K in IRAs, $100K is post tax (reflected on 8606 forms) and $100K is pretax. If you were to convert money to Roth, you must pay tax on the pro-rated pre-tax amount, 50% in this example. But, if you follow my plan, you transfer the $100K pretax amount into the 401(k), and all converted funds are converted to Roth with no tax due at all. Does this clarify, or were you questioning a different aspect of my approach?

Joe

A SOLO 401K is a qualified defined contribution plan.

Go to the following link and you can look at a rollover chart by clicking on the link in that page.

I should have added that this provision of EGTRRA was due to expire with a bunch of other pension stuff at year-end 2010. PPA

2006 made the provisions permanent.

I'm not sure of this .. but.. I believe distributions from IRAs are handled differently than distributions from a qualified plan. When you have a plan that has a cost basis because of after-tax contributions, the plan has to keep them separate. When you perform a rollover from such a plan, you can designate that the after tax amounts be included or not be included in the rollover.

When you have an IRA that has a cost basis, distributions are handled differently. Each distribution whether it be a rollover or a direct transfer has a pro rata portion of the pre and post tax amounts. I don't believe you have the option to designate that an IRA distribution only have pre-tax or post-tax funds.

Most 401(k)s will not accept post tax money. Are you suggesting that when one rolls a 401(k) into an IRA, that they lose the chance to roll back into any 401(k) as they have post tax money? I don't mean to present a tautological argument, it come down to the process of transferring IRA money into the 401(k). It's my understanding that in this case it's permitted to transfer *only* the pretax funds, thus my proposal. Joe

First off, I believe most qualified plans still do not accept IRA rollovers. They are a pain in the ass especially if there is after-tax money. The pension plans do not want to administer the after-tax money separately.

You have interpreted what I said correctly. If you have a retirement plan that has both pre-tax and after-tax funds that you intend to park in an IRA before you roll it back to an accepting pension plan, then you want to create two IRA accounts and roll the after-tax pension funds into one account or to a Roth IRA and the pre-tax pension funds into the other IRA. If you commingle both types of funds into one IRA, then each subsequent distribution is also commingled funds.

PPA 2006 allows the direct rollover to a Roth IRA. This is the optimal solution for the after-tax rollover from the pension as subsequent earnings would not be taxed. If you roll the after-tax into an IRA, you create the cost basis but subsequent earnings have no cost basis.

My employer's 401(k) accepts IRA money back in, and I though the whole point of the posted EGTRRA link earlier was to point out that these funds need not remain in a "rollover" designated account.

Many here have continued to point out that you have One IRA (and One Roth, now) but that One Traditional IRA is composed of pre and post tax money regardless of the number of separate accounts it's in.

I'll await other's comments on this. Joe

They don't. But... if you have after-tax money in the pension plan and you want to eventually roll it back to a pension and then convert to a Roth in 2010... you should just roll the after-tax funds directly into a Roth IRA now if your income is below the threshold or if you can't roll it over now, keep it in a separate IRA account from the pre-tax rollover funds.

I also would like to see some other's comment on what I said about commingled after-tax and pre-tax funds in an IRA. I.e., you can't designate that the after-tax amounts go to A and the pre-tax amounts go to B on rollovers.