Author Topic: Can I convert to a roth IRA and contribute to a traditional IRA (same year)?  (Read 1918 times)

SpartyStash

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Hi MMM'ers,

Can I convert rollover IRA $$$ (all pre-tax $) to a Roth IRA, while also contributing to a separate traditional IRA (in the same tax year)?  I don't think this is allowed, but I haven't been able to find anything that addresses this question. 

- I do not have a Roth IRA account at the present time.
- I have separate Traditional IRA and Rollover IRA accounts.
- Current income is ~60K, so a Traditional IRA contribution allows me to decrease some federal taxes.  But I'd like to convert some of my IRA $ as my RMD's at age 70 will likely put me in a higher tax bracket (Estimated RMD from Schwab's calculator is 65K assuming 4% growth, current age = 54).

Thanks,
Sparty



MDM

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Can I convert rollover IRA $$$ (all pre-tax $) to a Roth IRA, while also contributing to a separate traditional IRA (in the same tax year)?
Yes, but why do you want to do this?  Every $1 of pre-tax tIRA converted to Roth cancels $1 of tIRA contribution deduction.

GizmoTX

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Convert your rollover IRA later, when your taxes are lower. Fund a traditional 401K now up to at least an employer match, then a Roth IRA, & finally max out your t401k if you still have funding available.

SpartyStash

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Can I convert rollover IRA $$$ (all pre-tax $) to a Roth IRA, while also contributing to a separate traditional IRA (in the same tax year)?
Yes, but why do you want to do this?  Every $1 of pre-tax tIRA converted to Roth cancels $1 of tIRA contribution deduction.

Thanks for the info!  Why:  I'm hoping to keep my taxable income fairly low now (it's nice not paying a lot of tax! (I was in a high tax bracket for years)).  But I am aware that at age 70.5, my RMD's will really increase my income.  So by making a tIRA contribution, I would be able to "cancel" some of a Roth conversion.  I'm also thinking of doing the conversion from my Rollover IRA, not my tIRA (I think this would simplify things).

I did some more research last night and one option is to start contributing to a Roth and do some conversions from my tIRA (which has some non-qualified (after tax) $$$). 
 

SpartyStash

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Convert your rollover IRA later, when your taxes are lower. Fund a traditional 401K now up to at least an employer match, then a Roth IRA, & finally max out your t401k if you still have funding available.

Right now, my income is probably the lowest it's going to get ((30K in dividends, 10K in capital gains, 20K in consulting).  I'm semi-retired so there is no employer match.  I do a little bit of consulting, that's something that might go away in the future.  I believe that my "income" will be fairly stable for the next 5-6 years, but when I hit 60, it could increase (might take a pension early, would like to get out of a Fidelity Personal Retirement Annuity (used that to shield a severance years ago)).  So I think I've got 5-6 years to convert some IRA $ to a Roth.
 

josh4trunks

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From a tax perspective you would accomplish the same taxable income by just contributing to a Roth. Even better is you could then withdraw this (for example as an emergency fund) any time without penalty. By doing what you suggest you are just locking up the conversions for 5 years. So I do not recommend you take this approach. Just contribute to Roth directly.
« Last Edit: August 01, 2017, 01:17:52 PM by josh4trunks »

Pootie22

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When you convert money from an IRA to a Roth IRA you have to pay taxes on that money. Like MDM said, they are just going to cancel each other out. So if you convert $100 from an IRA to a Roth IRA you now have to pay taxes on that $100 if you then contribute $100 to a traditional IRA you reduced your taxable income by $100 which was cancelled out by the $100 you rolled over.

At the end of the day you ended up with the same $100 in the IRA and an additional $100 in the Roth IRA so why not just contribute the $100 into the Roth IRA in the first place.

SpartyStash

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When you convert money from an IRA to a Roth IRA you have to pay taxes on that money. Like MDM said, they are just going to cancel each other out. So if you convert $100 from an IRA to a Roth IRA you now have to pay taxes on that $100 if you then contribute $100 to a traditional IRA you reduced your taxable income by $100 which was cancelled out by the $100 you rolled over.

At the end of the day you ended up with the same $100 in the IRA and an additional $100 in the Roth IRA so why not just contribute the $100 into the Roth IRA in the first place.


Thanks for the post.  This helps.  Adding to a tIRA while at the same time converting, doesn't really help (as I'm adding funds to a vehicle (tIRA) that's going to be hit with RMD's at age 70.5).  I was hoping to come up with a strategy that allows me to convert tIRA or rolloverIRA funds to a Roth, that minimizes taxes.  Doesn't seem possible (other than to really decrease income).  I think I have a 5-6 year window (possibly longer) where I can convert some of my tIRA and rolloverIRA funds (e.g. 15-20K per year) and remain in a moderately low tax bracket.  But that's still going to leave ~800K growing with big RMD's when (if) I hit 70.5.

 

SpartyStash

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From a tax perspective you would accomplish the same taxable income by just contributing to a Roth. Even better is you could then withdraw this (for example as an emergency fund) any time without penalty. By doing what you suggest you are just locking up the conversions for 5 years. So I do not recommend you take this approach. Just contribute to Roth directly.

Good point (5-year lock-up on converted funds).  But I don't think the 5-year lock-up would be an issue for myself.  Even if I were to convert 100-120K, that's <15% of my IRA balances.  It's definitely something to be aware of, but I should have sufficient funds in my other accounts (e.g. taxable investments) so that I would not need the Roth funds right away.