IRA Rules

Posts Tagged ‘403b’

Question: Advice on a retired person converting from a traditional IRA to a Roth?

I have a traditional IRA (about 40K) that I am thinking of converting to a Roth IRA. I am retired and about 3 years away from mandatory IRA withdrawals. Knowing full well that I will take a tax hit if I do this, is it a good idea to do this and just let the money grow tax free or should I just steel myself to mandatory yearly withdrawals at age 70 1/2, I can afford the tax hit and my taxable income in 2007 was approx 37K. Thx

Answer: If you have the money in non-tax deferred accounts to pay the taxes on the Roth conversion, then go ahead and make the conversion to the Roth. Don’t convert more than what would put you into the 28% bracket.

According to the Motley Fool:

You can find Roth IRA conversion “Calculators” all over the Web to help you with your decision (test several or read reviews first to make sure the calculator you use matches your personal situation best — not all Calculators are created equal). We have IRA Calculators to help you chose between a regular IRA and a Roth IRA and decide whether to convert an IRA into a Roth IRA:

http://www.fool.com/calcs/Calculators.htm#roth

Click on “Should I convert my IRA to a Roth IRA?”

Question: Regular 401k, Regular IRA, and my wife’s Roth IRA plus our Investment?

I’m using simple terminology to help others who may benefit from my questions.

Facts: our planned retirement age 62, won’t live in USA, we will have 5 sources of income: my 401k + IRA + military pension, her IRA , & our investments.

Unknowns: Social Security for us, & my employer’s pension; not planning on them.

1. I have a regular 401k. Would like to know what mandatory US government deductions (e.g., taxes) will I owe on each withdrawal? A simple line-item answer is fine.

2. Same question for my traditional IRA, & for my wife’s Roth IRA.

3. Our investments are made with after-tax dollars. Since I already paid taxes on that money before investing it, when I reach 62, will I have to pay taxes on my withdrawals? If so, would that be double-taxation: the money was taxed before I invested it & then the gov’t will tax it again upon withdrawal? Remember: I also paid tax on the dividends and capital gains thru the years.

4. Do RMDs apply to IRAs & 401Ks?

Answer: regular 401ks and traditional 401ks get added together and taxed as ordinary income. If you take lump sum distributions then they may withhold 30% becasue you won’t be residing in USA (that’s a MAY).

Roth IRA is different. Assuming it’s in for the right amount of time it’s a non-taxable event.

After tax dollars that have had dividends and capital gains already paid on would not be taxed at all. Treat that no differently than you are currently doing so.

RMD’s apply to 401ks and traditional IRA’s but not to Roth IRA’s. Roth IRA’s also have better estate planning options than the 401k and Traditional IRA.

Question: Can one continue contributions to a Traditional IRA past age 70.5 while collecting the RMD at the same time?

I reached age 70-1/2 last year and will collect my first IRA Required Minimum Distribution (RMD) this year. This may be an odd question but can I still make a maximum tax free IRA contribution this year? For me this year, the max is $6,000. OR is it that once you start receiving RMDs past your 70-1/2 birthday, one CANNOT make any more IRA contributions for the rest of their lives?

Answer: Great question! First, recent legislation suspended RMDs for 2009.

Next, you cannot contribute to a traditional IRA for the year in which you turn age 70 1/2, or older. You can, however, contribute to a Roth IRA. Your contribution limit for 2008 is: 100% of earned income, or $6,000 (includes $1,000 catch-up amount), whichever is less.

Hope that helps.

Disclaimer. The information above is for general purposes only and is not be be construed as tax, legal, or specific advice for any individual. Please consult with your professional advisors before you make any decisions regarding your finances.

In Service 401k Distributions to Roth IRAs by Pete Mitchell