Two Retirement Plan Questions

1) Some years ago I had a Keogh plan at Fidelity. When the contribution limits changed to allow the same contributions to SEP- IRA's, I terminated that plan - my guess it that it was around 2004. In 2007 I opened a self-employed 401(k) with American Century, mainly because they had a Roth option. However, because I moved to a state with a high income tax, I am no longer interested in making Roth contributions (I prefer the current tax deduction). I also want to clear out my IRA's by rolling them into a qualified plan. So what I want to do is open a self-employed 401(k) at Fidelity, roll in my SEP- IRA (I know they allow that), and that leaves.... the American Century plan.

I know I can only contribute to one plan a year. What I'd like to do is terminate the American Century plan, and roll the money into an IRA

- a conduit rollver IRA for the pre-tax money, and my regular Roth IRA for the Roth money.

Is this going to raise any red flags? I know the IRS doesn't like you to terminate plans too often. Is there any "rule" about it? Would it be any different if I left the American Century plan sit there for a while and just didn't contribute to it?

2) As we get more and more "soak the rich" proposals (higher Medicare Part B premiums, now proposed Medicare tax on unearned income), it creates a clear bias in favor of Roth money. As I understand it, a withdrawal from a Roth is not recognized anywhere on your taxes. If you take $100,000 out of your IRA you look rich; if you take $100,000 out of your Roth, you look like a pauper. Am I right, as of now, that a Roth withdrawal doesn't show up anywhere? And, is there any reason the IRS can't at some later time make you show Roth withdrawals in your AGI, just somehow subject to a zero tax rate? I'm guessing that they would be legally barred from taxing them, but not from considering them as income for other purposes. Knowing that nothing is certain, in this case "even taxes," is there a consensus opinion?
Reply to
Hank Youngerman
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Congress can and will do what it wants in the future. Us older guys remember when Social Security payments were never going to be taxed and when Municipal Bond interest was never going to be used to determine how much of Social Security benefits would be taxable.

Reply to
Avrum Lapin

Hank Youngerman wrote: [...]

My guess is that you shouldn't have two different 401(k) plans for the same business, but your question sounds pretty complex for a volunteer newsgroup.

Nor is a withdrawal from your bank savings account.

I don't follow the second part -- the distribution (in fact, the annual balance) from a Roth is reported to the government. (Of course, your bank account withdrawals over $10K are also reported to the government, but not on a tax form). So you look like you got your hands on an unrestricted $100K no matter what.

Am I right, as of now, that

Their are proposals floating around to tax the money you spend instead of (or in addition to) the money you receive. Who knows if or when they will ever be made into law?

At the state level, it already is the law -- and here in California, for example, I wouldn't be surprised to see sales tax on services in addition to goods sometime soon. State sales tax of 9.25% in many California counties is hardly any different from the top marginal income tax rate.

Florida used to have an intangible assets tax, I think - an annual tax on the value of all your regular investment accounts. Hawaii has an excise tax that includes monthly rent on an apartment.

So if there is any consensus, it is that you are going to be taxed no matter what you do, short of dying, and soon that tax will be re-instated too.

-Mark Bole

Reply to
Mark Bole

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