JAMES PATRICK

I don't think the answers were contradictory, they just weren't clear enough to you. You must have taxable compensation to contribute to an IRA. You can claim an exclusion from US taxes on about $80k of foreign earned income and as that income is not taxable you can not use it to fund an IRA. If you are single and earn over $80k then the portion over $80 and less than $95k can be used to fund a Roth, after $95k and until $110k you begin to reduce the amount that can be contributed ($3000) until it is reduced to zero at $110k and above. It is not really that simple because if you also have earnings from other sources the amount that can be contributed may be further reduced. So the answer to your question really depends on your marital status, total earnings, deductions taken for foreign housing and a few other items I am sure I overlooked.

Good point.

I thought that the 120 days was only when the real estate deal fell through or was I reading more into it than I should have?

Actually, the earnings would have an exception to the 10% penalty because it is a first time home owner, up to $10,000. It would all be taxable however.

If Roth open 5 years and you are 59 1/2 any and all money can now be taken tax and penalty free. If not open 5 years and you are 59 1/2 than any earnings that you withdraw are subject to taxes but no penalty.

Well, your message is obviously the most unusual this board has seen. Congratulations on your wedding. You can withdraw contributions you made to a Roth any time, tax and penalty free. What you may be reffering to is a Qualified distribution which means you and your husband are EACH eligible to withdraw up to $10,000 in Earnings, after the Roth is open 5 years for the purchase of a home under the 1st time home buyer exception. So if you each had contributed $15,000 from 2001-2005 and were fortunate enough to see that grow to $25000, then ALL of the $25,000 could be withdrawn and you would owe no taxes on the $50,000 between you.

The only limits I am aware of are the MFS and $100,000 MAGI.

If the IRA is just the temporary holding vehicle prior to conversion to Roth, that may be a reason.

If he did the conversion in 1998 than he can withdraw CONVERSION funds with no penalty on 1/1/2003. Actually he could withdraw them earlier if the funds were used for a reason that is excepted from the 10% penalty, like education,1st time home buyer,disability,etc. There is an ordering sequence to Roth distributions which says contributions are out first, next is conversions and last is earnings.

The facts as you present them don't appear correct and may indicate that you have a problem. The only year that you could do a 4 year "spread" was 1998. You had to do the conversion in 1998, unless you rolled over the IRA in 1998 (took the money out of the IRA) and within 60 days completed the conversion to a Roth. 3/1/1999 is the 60th day of 1999, so he may not have a valid conversion.

$3,000 of losses can be offset against your income, provided that you don't have capital gains that would cancel them out.

The proposed form 8880 says to enter the amount from line 36, which is the AGI, and then to look up the % based on that figure. So it appears that the conversion amount would be included in AGI.

If they told you to file a 5498 I wonder if the 1099R was coded as 1 in Box 7. To pay 14k on 33k would be about a tax rate of 42%. So I wonder if the 14K includes the 10% penalty. Did you take the stock and do the rollover or did you have the trustee do the transfer?

It is based on his RMD.

In reading Pub 590 on p54 it discusses the adverse consequences of a failed Roth conversion that is not recharacterized. I understand #1 and #2 but am not clear on #3. "The 10% additional tax on early distributions may apply to any distribution". The section above it states that the "contribution" will be treated as a regular contribution, which as we know is never subject to tax or penalty. So what distribution MAY be subject to the 10% penalty?

One of the requirements to contribute to a Roth or Traditional IRA is that you have taxable compensation. Since you state your income is not taxable in US then you are not eligible for an IRA. See Publication 590.

Withdrawals of contributions can be made at any time, tax AND penalty free. It is conversions,each with its own 5 year time period, and earnings that MAY be subject to the 10% penalty. Withdrawals from a Roth must be returned (rolled over) within 60 days or they would be considered an excess contribution. Go to irs.gov and download Publication 590.

In the H & R Block course titled Retired Taxpayer, which is given to their employees, it states that an individual born on June 30th is 70 1/2 on December 30th. An individual born on July 1st is 70 1/2 on January 1st. Not that Block can't be wrong but they do a very good job on their training and copy much of it from IRS regs, pubs, etc.

While you guys have done an excellent job of spelling out a lot of the pros and cons I can't let my pet peeve escape without being mentioned and that is Social Security benefits. Individuals MUST consider how they will be taxed at retirement and how the inclusion of MRD's will impact the tax rate and amount of benefits to be taxed.

I've got a better idea. If her income is $16,000 this year you have her put $1000 in a Traditional which will bring her AGI to $15,000. Then she can put at least $1000 in the Roth(max is $2000) and with the Credit this year she will wipe out her tax liability of $795. So she will make $16000, put $1000 in a Traditional, get a $3000 exemption,a $4700 standard deduction and pay NO taxes on her taxable income of $7300 as long as she puts at least $590 into the Roth, for the 50% credit. Isn't this country wonderful?

If you income is anyway near last year's than the answer is NO.

She can NOT leave it there as long as she wants. If she does not begin taking withdrawals based on her life expectancy by 12/31 of the year after your MIL died than she MUST close the account 5 years after the death of the MIL. Otherwise there is a 50% penalty on the amount not withdrawn.

I am not very familiar with insurance and annuiities but my take is that the "accumulation" value is what we would call the fair market value on that date. That would appear to be the value to report rather than that value less surrender charges. When stock is transferred from an IRA to a Roth it is the FMV that day, NOT the FMV less potential brokerage sales commissions.

You can NOT deduct a contribution to a Roth. The deduction on the 1040 is for Traditional IRA's not Roth IRA"s. You can open a new Roth or contribute to an existing one, it generally doesn't make a difference. You have until 4/15/2002 to contribute. When you do Conversions on a regular basis I believe it is better to open new accounts until such time as they can NOT be recharacterized, makes it easier to undo.

As long as you open the 2001 Roth before April 16,2002 you will be alright. Roth contributions are not recorded(reported) on your tax return, so an amended return is not necessary.