IRA Rules

Posts Tagged ‘ira’

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: Can someone please explain this detail of the 60-Day IRA Rollover rule?

I am under age 59 1/2.

I want to take an amount of cash from my IRA and do a “rollover” into another IRA. I understand that if I take a cash distribution I am subject to current taxes and a 10% penalty if I do not complete this rollover within 60 days. My question is this –

If I take the distribution in December, then complete the rollover (re-deposit the money) in January, what is my tax liability? This transaction will have taken place over two tax years; I will have to report the distribution on my 2011 1040, but I will not be able to report the rollover until 2012. How will this be handled?

If you do answer this and do give an opinion, I’d be grateful if you could link to the IRS ruling or some article that explains it to me.

Thanks

Answer: If you do a rollover, make sure you don’t leave your fingerprints on the money. Have a trustee to trustee transfer and you won’t have to worry about taxes on it until you start spending it.

Question: Should I have my wife with her lower income contribute into Roth IRA instead of me? ?

I am currently 23 and make 60k/yr. My wife is also 23 and currently without a job, but I estimate her income will be between 20-30k/yr. I am currently contributing 10% of my income into a traditional 401k and have been debating contributing to a Roth when it occured to me that SHE should contribute to the Roth because her tax bracket is lower than mine, providing the better tax deal. Would this play out how I imagine it would, or is there some rule with IRA that married couples are taxed at their combined income instead of individual when contributing?
It seems people don’t understand what I am getting at. Lets say I am in a 25% tax bracket and she is in a 15% tax bracket. If she contributes 5k a year into a Roth at her tax rate it would be 4.25k, while if I contributed 5k at my tax bracket into Roth it would be 3.75k towards our retirement. My question is does this infact happen, or does it go by your married joint income when determining your tax bracket?

Answer: It does not matter who contribute to the Roth IRA and besides, you and your spouse only have one common tax rate and the money contributed to the Roth IRA is after-tax money.

I encourage both of you to open a Roth IRA account so one for yourself and one for your wife. There is no Joint IRA because the “I” in IRA means Individual so you can only have your own Roth IRA and so is your wife. Now remember, there’s a contribution limit each year on IRA so don’t over-contribute.

Personal Investment & Loan Tips : 401K vs. IRA