Roth IRA Conversion

Submitted by Jason Hochstadt on Thu, 2016-06-30 20:49

Hello,

If a client has a Roth IRA funded via contributions only (along w/ whatever growth has occurred) and also has 1 or more Roth IRA conversions that were/will never be recharacterized (so they’ll be Roth’s forever):

1. Can more than 1 Roth IRA Conversion Account be combined so there is just 1 (again, assuming recharacterization is not a consideration)?

2. Can 1 or more Roth IRAs be combined with 1 or more Roth IRA Conversions (assuming no recharacterization of the Roth IRA conversions will ever be done/the time has passed)?

Please advise. Thanks!

Jason



Submitted by Alan - IRA critic on Thu, 2016-06-30 21:17

  1. Client could combine all the Roth accounts, since for tax reasons they are already considered combined.
  2. Combining does not impair recharacterization of regular contributions or conversions. It just waters down various conversion strategies which depend on isolating the result of particular conversions, and subjects the earnings calculations for recharacterization to correct entry by the custodian into their software program, and makes the result less transparent.


Submitted by Jason Hochstadt on Fri, 2016-07-01 14:48

Thanks, Alan.  For #2, I understand the benefit of keeping separate Roth IRA conversion accounts for different asset classes.  #2 was really an extension of #1 – as I have some clients w/ Roth IRAs (contributions only) AND Roth IRA Conversions (done a few years back) and didn’t see why they couldn’t be combined considering there are no recharacterizations to ever be done for the Roth IRA Conversions.



Submitted by Alan - IRA critic on Fri, 2016-07-01 18:16

Yes, they certainly can be combined. There are a handful of states that provide different creditor protection for Roth IRAs (usually less) than for TIRAs. In certain states, if a Roth IRA was created by a rollover from a qualified plan either by direct conversion or a rollover from a designated Roth, those rollovers should be kept separate if they are large enough. Under the federal BK Act, these rollovers would have no dollar limit for creditor protection, whereas commingled Roth including regular contributions or IRA conversions would be limited to a dollar figure, current around 1.3mm.



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