Roth IRA & Roth IRA Conversion

Submitted by Jason Hochstadt on Tue, 2018-05-22 00:24

Hello,

1. With the inability to recharacterize Roth IRA conversions, is there any reason to NOT combine (a) one or more Roth IRAs funded with contributions and (b) one or more Roth IRA conversions assuming the oldest Roth IRA (funded via contributions) and Roth IRA conversion is more than 5 years old?

2. Also, so as to not risk seeing the underlying investment decline considerably in the same calendar year at least absent the ability to recharacterize, is there any reason to consider Roth iRA conversions earlier in the year – as it would appear to be more beneficial as late in the year as possible/

Thank you.

Jason



Submitted by Alan - IRA critic on Tue, 2018-05-22 00:43

  1. No substantial reason not to combine the Roths, even if the oldest is not 5 years old. There could be selective reasons of course, such as wanting a separate account for each beneficiary, or holding non traditional assets in one Roth and not the other. 
  2. Since the tendency in the majority of years is to have gains, there is a slight advantage for getting funds into the Roth account earlier. 

Submitted by NICK Jongebloed on Tue, 2018-05-22 16:38

I am considering starting a 5 year  SEPP program in March 2019. I will be 5 years from 59 1/2. I’m also converting traditional IRA funds to a Self Directed Roth  IRA for purposes of Real Estate Investments.  The appeal of the Roth Conversion is the opportunity to avoid tax liability on equity gain and on income generated from the assets.Are there thoughts/considerations anyone would like to share? I have been advised that I can continue Roth Conversions despite the launch of an SEPP Program.

Submitted by Alan - IRA critic on Tue, 2018-05-22 17:43

If you want to combine a self directed IRA with a SEPP, you are accepting a high risk of busting the SEPP because given the choice of saving the SD IRA from a prohibited transaction or busting the SEPP, you would opt to bust the SEPP because the retroactive penalty costs far less than doing a prohibited transaction. This combination is highly risky because it eliminates much of the flexibility you would otherwise have. Then if you add conversions of accounts you used to calculate your SEPP, while that is legal it is very rare and invites IRS inquiries. I would firmly advise against trying to walk a tightrope combining these 3 elements of the tax code into an integrated plan.

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