Maximizing a Roth IRA with rollovers and contributions in the same year

Submitted by David Heuring on Thu, 2023-08-24 17:44

My spouse is in her 40’s and has earned income that is less than $204,000. I’m 71 years old and retired with no income but I draw social security. We file taxes as “married filing jointly”. I wish to maximize my Roth IRA by 1) rolling over funds from a traditional IRA to a recently opened Roth IRA, 2) rolling over a small Roth IRA to larger one but keeping the smaller one open since it was set up 20 years ago, and 3) contributing to the larger Roth IRA as long as my wife has earned income.

Is the following permitted during tax year 2023?

• A $20,000 rollover from my traditional IRA account to my Roth IRA account # 1 (pay taxes on this amount separately)
• A $10,000 rollover from my Roth IRA account # 2 to my Roth IRA account # 1
• An annual $7,500 contribution to my Roth IRA account # 1

My wife contributes to a company-sponsored 401b Roth account but would also like to set up and contribute $6,500 to a separate Roth IRA account.

Is there any reason why I couldn’t do all of this?

Thanks,

Dave



Submitted by Alan - IRA critic on Thu, 2023-08-24 18:52

  • The 20,000 conversion is fine, but there is no benefit to maintaining two Roth IRAs.
  • You can move funds from one Roth to another, but should do so by direct transfer to save your one allowed rollover in a 12 month period. You can combine your Roths into a single account as there is no tax benefit from maintaining more than one.
  • A full regular Roth contribution for either of you is allowed if your joint MAGI does not exceed 218k. Your MAGI will likely be higher than earned income.

Submitted by David Mertz on Thu, 2023-08-24 18:58

Also, the taxable amount of Roth conversions is excluded from your modified AGI for the purpose of a Roth IRA contribution, so Roth conversions have no effect on your eligibility to contribute to  a Roth IRA.

Submitted by PaulC on Mon, 2023-08-28 14:52

As has been stated, there’s no tax reason to keep the smaller Roth IRA open. If your thinking was that the older Roth IRA needed to be kept open to maintain the five-year rule on establishing a Roth, that’s not the case. Once the five-year rule on opening a Roth has been met the rule is still satisfied whether or not that original Roth account is kept open. The clock doesn’t reset if an older Roth is closed and a newer Roth is less than five years old.

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