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Can I have two IRA's? One of each type?


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11 replies to this topic

#1 Guest_named_PhilGeo222_*

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Posted 08 March 1999 - 06:13 PM

I started a traditional IRA a few years ago and would like to get into a Roth account. Is it possible to just start a Roth IRA and have one of both? (I don't want to pay taxes on what's in my traditional even though I know it would be better in the long run!)

Would appreciate any comments.

#2 Guest_named_Kathy_*

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Posted 09 March 1999 - 11:09 AM

Yes, you may have different IRA accounts. You may leave your traditional IRA just as it is until you reach age 70 1/2 if you want. You may also contribute to a Roth IRA this year, as long as you meet the income restrictions. Next year, you can choose to make either a Roth (subject to income restrictions) contribution or traditional IRA contribution or you can choose to split your maximum $2,000 IRA contribution between the two types of accounts (again, subject to the income restrictions on the Roth IRA.) You can choose not to contribute in a year. You can choose to open yet another IRA somewhere else next year and another the year after that.

Isn't it great the options we have!?!?!?!

#3 Guest_named_dbob_*

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Posted 10 March 1999 - 02:42 AM

I have a traditional IRA and would like to open up a Roth with part of the $2,000 contribution limit. Have I read correctly that I am only taxed for the next 5 years on the Roth? This can't be true, can it?

------------------
Thank you,
D.

#4 Guest_named_John G_*

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Posted 10 March 1999 - 04:49 PM

You will need to further explain your question. Roth IRAs do not provide a tax deduction. Contributory Roths have income restrictions. The assets when withdrawn later in life are federal (state laws may echo the federal policy, best to check with your state) tax free. Tax free for both the original contributions, interest, dividends and capital gains. I hope that answers your questions, if not try to clarify your concern so I or others may respond.

#5 Guest_named_Fishman_*

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Posted 26 March 1999 - 11:12 PM

Having maxed out my 401K for the past 10 years, I never opened an IRA. Last year I opened Roth IRA's for my wife and I, $2K each. I want to add $2K to each before 4/15/99, but not necessarily to the same mutuals funds as last year. Can I open 2 new Roths, or do I need to transfer $$ in the old roths to the new ones I open? Per your message above - how many Roths/IRAs can you have - as many as you want, as long as you only put in $2K/yr? Thanks so much!

#6 Guest_named_John G_*

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Posted 26 March 1999 - 11:25 PM

You can have any combination of Roth and regular IRAs as long as you qualify to begin with. For example, you can have two Roth IRAs at 500 each and five regular ones at 200 each. But, Roth and regular IRAs often have annual fees and you don't really want to be buried in a pile of reports/prospecti etc. Think of all your retirement assets as one pool and look at how you are allocating your investments. If your 401k is sizeable and all in one stock, you don't do much by splitting 2,000 into lots of pieces. A few years from now when you have built up the size of your IRA accounts, you might want to rethink your allocation. The first few years, I would keep it simple.

#7 Guest_named_bojack_*

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Posted 30 March 1999 - 12:13 AM

I have two questions...

- If one did not make a contribution to a regular IRA in 1998,is it required to
file a form 8606 even though the IRA
still lives?
- If one has instead opened Roth IRA
in 1998, is there a form similar to
the 8606 that must be filed?
- The instructions do not address these
questions.
-Thanks for any help.

#8 Guest_named_Lyric_*

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Posted 30 March 1999 - 02:47 AM

Fishman,

A person doesn't need to have two or more Roth IRAs to invest the money in two or more different mutual funds. One account can consist of as many different funds as you like. You can at any time contact the custodian/trustee of the Roth IRA and ask for the assets to be allocated differently within the same account. Bear in mind that some mutual funds have minimum requirements, so you might not be able to spread a total of $2,000 across six different mutual funds if the minimum is $1,000 per fund.

So for 1998, just send a check to the custodian of your existing Roth IRA(s) and tell them which mutual funds you want to purchase with your 1998 contributions. Give them a call first if you like to make sure you get the procedure right (if they want forms filled), since April 14 is almost upon us and you don't want to screw up at the last minute.

Where it is important to have two different Roth IRAs is if you have a Roth resulting from the conversion of a traditional IRA, and then want to start contributing to a Roth. Because the sources of the assets are different, you don't want these assets mingled since the tax and withdrawal provisions will differ, especially during the first five years. Both of these can, of course, consist of as many mutual funds as you like.

_____________


dbob,

There are restrictions on withdrawals from Roth IRAs during the first five years, with certain exceptions. Conversion IRAs and contributory IRAs are treated somewhat differently. Your contributions to a contributory IRA can be deducted without penalty at any time (first in, first out). It's the interest, dividends and capital gains that are taxed during the restricted period. Thereafter it's all tax-free.

Early withdrawals from conversion Roths are penalized -- I guess because there's no way of knowing which part was a "contribution" and which part was "growth", so first in first out doesn't apply.

#9 Guest_named_Del Rae_*

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Posted 30 March 1999 - 06:40 PM

Boy, is there a record of how long a topic can run?

Bojack,

You asked if you needed to file a 8606 in the 1998 tax return? No, not if you didn't actually make a contribution, or a distribution out of your regular IRA accounts.

And secondly, you asked if you made a Roth contribution, would there be any form like the 8606 to file. Nope... (not for a contribution, you'd use the 8606 if you converted or recharacterized amounts into a Roth however)

#10 Guest_named_Kathy_*

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Posted 05 April 1999 - 06:39 PM

Lyric,
It is important to note that if you hire a trustee/custodian to handle your self-directed IRA, then you can often direct them to invest your IRA assets in almost anything. However, if you open an IRA at a particular mutual fund family, chances are they will act as custodian over only their investment options. Having one trustee of a self-directed IRA consolidates all your accounts and minimizes paperwork but can sometimes cost more in fees than opening an IRA at a specific financial organization with their investments only and then opening a different IRA with another one next year... Sometimes the choice boils down to $$$$$ or extra paper.

Also, it is no longer necessary or helpful to keep your Roth contributions separate from your Roth conversions. The ordering rules state that all of your Roth IRAs are treated as one, the first money withdrawn is your own contributions, the next from conversions and then finally from earnings. Your own contributions always come out tax free (no so with a traditional IRA). The conversion dollars come out tax free but subject to a penalty if withdrawn within 5 years of their conversion and you don't meet any of the exceptions to the penalties (59 1/2, disability, first-time home, education, etc...). Finally, earnings withdrawn before both 5 years and 59 1/2 are subject to tax and possibly penalties. If I contribute $2,000 to Roth IRA 1 and convert $5,000 to Roth IRA 2. Then I take a distribution of $1,000 from Roth IRA 2, it is treated as a return of my own contribution, even though it came from a conversion account. No need to keep them separate any more.

#11 Guest_named_Lyric_*

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Posted 05 April 1999 - 11:26 PM

Thanks, Kathy --

I did recently discover that one no longer needs to keep conversion and contributory accounts separate, and in fact directed someone (in another post) to an online article on that very subject.

As for the extra paperwork versus extra dollars, I agree with you that working with more than one mutual fund family can complicate things. In fact I intend to stay within the same fund family for that very reason. Until I know a heck of a lot more about investing, and have a heck of a lot more dollars to spread around, and have a heck of a lot more time to play the market, I plan to keep things simple. Meanwhile life goes on ...

Lyric

#12 Guest_named_John G_*

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Posted 06 April 1999 - 04:46 PM

Lyric: bravo, you reached the right conclusion. No need to get all excited until perhaps a decade passes and your assets have grown... and maybe not even then. Good luck.