Conversion – second Roth account
In the June 20 WSJ article it was mentioned that one should set up a second Roth account for the conversion so as not to ‘dilute’ the tax benefit when you combine conversion amounts with other Roth amounts that have increased in value.
However, what if these existing Roth IRA amounts have also decreased in value? Have not most accounts decreased in value?
Thanks
Rita
Permalink Submitted by Anonymous (not verified) on Tue, 2009-07-07 16:44
I really don’t understand that point either. Ordering rules for distributions are applied to the whole Roth “pot”. So this just seems an issue of choosing a better/different investment or for visability in having an easier way of tracking ones money. What if my regular Roth has done great and I put my conversion in it, and it really takes off. Verses putting the conversion into a disaster of an investment?
Permalink Submitted by Clyde Wolf on Tue, 2009-07-07 18:06
I have read, Probably on this forum, that the second ROTH IRA is a good idea for a different reason. That different reason would be because you may want to recharacterized the conversion later. Having the conversion in a separate account makes the recharacterization “cleaner”.
Permalink Submitted by Anonymous (not verified) on Tue, 2009-07-07 19:09
Good point. That can work for or against you.
The article probably meant that the regular Roth account, with gains, will weigh on the earnings/loss calculation during the recharacterization of the converted amount that lost money [custodians should be peforming calculations on a plan level, the way I understand the rules].
I guess you could make the arguement that it is cleaner and a better reflection of the true performance. Especially, if you want to reconvert in a compliant manner (special rules for that) later on.
Overall, I have to chuckle a bit about all these writers that seem to have these clever “schemes”, when those that simply did not time the market in the last 12 months actually made out OK…..Just a personal note.
pmk