Roth Conversion Into Existing Roth IRA
I have a 37 year old client that wants to begin converting her Traditional IRA funds over to her existing Roth IRA account. She intends to convert $5,000 per year into the Roth IRA. At this rate, it will likely take about 8 years at $5,000 per year. Is there any reason why she should not use her existing Roth IRA account to move the converted funds into? Would she be better off setting up a completely separate Roth IRA for the conversions only? At this point, this is long-term money with no foreseeable short-term need.
Permalink Submitted by Alan - IRA critic on Tue, 2014-04-15 22:20
It is not necessary to convert to a new Roth IRA if client is not using one of the selective conversion strategies. An example of that would be to make two conversions, invest them differently, and then recharacterize the worst performer and keep the best performer. For most people, particularly those converting small incremental amounts such as this client, there is no need to set up new Roth conversion IRAs. She just needs to understand that if she wants to recharacterize a conversion, the amount of earnings (or less any losses) that go along are calculated on the results of the entire Roth, not just for the 5,000 converted.