Simple IRA with Traditional IRA after tax money

Submitted by Mobey on Thu, 2011-01-06 19:49

Client is a business owner. He has a Simple IRA he had been using for the business and a Traditional IRA from the past with after tax money in it.

Questions:

1 – If we convert the Trad IRA to a Roth, can we exclude the Simple IRA in calculating the percentage of after tax money?
2 – Can we transfer the before tax part of the Trad IRA to the Simple, leaving only the after tax portion, and then convert it to a Roth at no cost, as you might be able to do with other Qualified Plans?

Thanks in Advance.



Submitted by Alan Spross on Thu, 2011-01-06 20:41

1) No, the client must use the balance of all owned TIRA, SEP IRA and SIMPLE IRA accounts to determine the after tax %. This is stated on Form 8606 where the taxable % is calculated.
2) No, this works for qualified employer plans, but not among the various IRA types.



Submitted by Mobey on Thu, 2011-01-06 21:13

Thanks Alan,

What if we converted the SIMPLE IRA to an Indiv. 401k?

And can we have Indiv 401ks for both a husband and wife in the same business if they have no employees? (Or for that matter, can we have one with either since there are two of them)?

Thanks,



Submitted by mk foss on Thu, 2011-01-06 22:05

Often a business operated by a husband-wife team will adopt a 401(k) plan. It’s a very efficient way to maximize retirement contributions. For example, assume husband makes 40K and wife makes 100k – they can each defer $16,500 into the plan and add a 25% profit sharing of $10,000 for husband and $25,000 for wife. That’s all within allowable limits.

If it’s an unincorporated busines and they both work in it – you can get the same result but it’s a little trickier. It’s easier to manage if one spouse gets a salary and the other is the self-employed owner.



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