Moving cash between Roth accounts
We just converted an IRA into two Roth accounts — one with fixed income, cash, one with equities. Is there any rule against moving some of the cash from one account to the other? I’d like to add to equities over the next few months. Thanks.
Permalink Submitted by Jose Morales on Mon, 2010-09-27 17:34
Assuming that both Roths are held by the same custodian, yes, you can move/exchange assets from one account to the other within the same Roth plan without any tax consequences. If the Roths are held by different custodians you would have to move the assets via an IRA to IRA Transfer, although this may be a bit troublesome if you are going to need money moved regularly.
Permalink Submitted by Alan Spross on Mon, 2010-09-27 22:36
These transfers could complicate recharacterization calculations should that be desired, eg if the equities tanked.
Permalink Submitted by Talia Pierluissi on Mon, 2010-09-27 23:04
How so? If I invest the cash in equities, then if equities tank, the entire account would tank, right?
Permalink Submitted by Alan Spross on Mon, 2010-09-27 23:49
First of all, you have two separate conversions here with respect to recharacterization rules, even though the distributions may have been done simultaneously.
It appears that cash is to be transferred from one Roth account to the other which is invested in equities. If this account tanks, the recharacterization formula for opening balance and closing balance requires that the amount of cash transfer into this account be added to the opening balance. The gains or losses in the account then include the period before the transfer plus the period after the transfer with the transferred assets. The closing balance is whatever is the balance in that particular IRA account.
Example: Convert 20k to Roth IRA and afterwards transfer 10k of cash into that IRA account.
Adjusted opening balance equals 30k (20 plus 10)
Account value is 24k on recharacterization date due to losses that trigger recharacterization decision
Recharaterized amount = Adj closing balance (24k) less Adjusted opening balance (30k) divided by Adj opening balance (30k) result is a loss of 20%
Therefore 80% of the original 20k conversion or 16k is the amount that goes back to the TIRA. That leaves 8k still in that account.
If the other conversion was also recharacterized, there are similar calculations needed for that one.
This does not prevent recharacterization, it just means that the actual account balance is not the amount that goes back to the TIRA. There can be some interesting distortions.