Starting a new Roth IRA account

Submitted by Mahesh Garg on Sat, 2018-03-17 20:04

Hi,

I am 55 years old. I am full-time employee and contributing max amount to my 401K account. I make over 120K/yr. I have an IRA account, which was created by converting 401K from a previous employer. This account has about 250K.

I have no non-deductible IRA account or Roth IRA account. I would like to start a new Roth IRA account so that the account is over 5 years old by the time I retire. My questions are:

1. If I create a non-deductible IRA account, and say put 10K in it, and convert that to “Roth IRA” right away. Will I still need to pay any taxes?

2. Is this advisable to do it at this stage? My primary reasons to do this are: (a) to keep some money in Roth IRA (which is over 5 years old) and take that money out, if needed., (b) After retirement, take some money out from IRA/401K, and put it in 401K, if has some tax benefits in the future.

Thanks!

MZN



Submitted by Alan - IRA critic on Sat, 2018-03-17 23:48

  1. Yes. The most you can contribute is 6500 per year. If you then convert that 6500 to a Roth IRA, 97.5% will be taxable because of your 250k rollover IRA balance. In order to eliminate taxes on the conversion you could have to roll the 250k back to your 401k if the plan will accept IRA rollovers. You might check to see exactly what your modified AGI is. A regular Roth IRA contribution for a single taxpayer is phased out starting at 120k, but any pre tax premiums, 401k contributions, or HSA contributions are not included in modified AGI. If you can make a regular Roth IRA contribution, then you do not need to be concerned with your rollover IRA or converting.
  2. If you have to pay taxes on the conversion at a tax rate higher than you expect to pay in retirement, you should not convert. Therefore, many people choose to convert small amounts after they retire and before ss benefits begin or RMDs from their 401k or IRA accounts. The tax rate for these conversions is low and likely to be lower than your rate after ss benefits and RMDs start.

            

Submitted by Mahesh Garg on Mon, 2018-03-19 04:35

Thank you!

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