Keep contributing to comingled IRA or start new one?
Both wife and I had rollover IRA’s from previous employers. We have not qualified for a Roth in the past due to incomes restrictions (except for one year and that only allowed for a partial contribution). Consequently, we have continued to make non-deductible contributions to our rollover IRA’s, essentially rendering these “co-mingled” accts.
Should we keep putting non-deductible money on these accounts (being careful to track the non-deductible portion), OR, just open another IRA and stop co-mingling? Would there be any benefit or difference?
Permalink Submitted by Alan - IRA critic on Fri, 2013-01-25 17:20
There is no reason not to make additional non deductible contributions to the former rollover IRA accounts because those accounts are technically no longer rollover IRAs since they have received regular IRA contributions. If you live in a state that fully protects IRA accounts from creditors it does not make much difference that you no longer have a rollover IRA with unlimited creditor protection in bankruptcy and protection under the federal BK Act would be limited to 1mm plus inflation adjustments. Another possible consequence of commingling is that some employer plans might not accept a rollover from these IRAs if you ever wanted to roll them into an employer plan such as a 401k. In other words, there may never be a problem due to the prior commingling, but if there is, the damage is already done, and therefore there is no benefit to now making future contributions to other newly opened accounts. With respect to taxes when distributions are taken, it makes no difference since all your non Roth IRAs are treated as a single combined account under Form 8606.
Permalink Submitted by Mike Hunt on Fri, 2013-01-25 19:08
As for 8606, doesn’t that keep track of (and determine) what tax you pay on withdrawals, since that logs your non-deductible “basis”?
Permalink Submitted by Alan - IRA critic on Fri, 2013-01-25 20:08
Yes, that is one of the uses of Form 8606.