JAMES PATRICK

It is permissable to put them all in one account. Some might feel it would be better initially to convert each TIRA to a separate Roth in the event you were to later decide to recharacterize one (or both) of them. After the time frame to recharacterize has passed you could combine them.

Qualified Distributions are: 5 year existence of Roth account AND 1. Fifty nine and one half OR 2. First time home owner OR 3. Disability OR 4. Death You would therefore have to pay taxes on the earnings portion of any w/d but not the 10% penalty.

If the withdrawal is not qualified --- the Roth is open 5 years AND you are not 59 1/2 --- then the earnings on the contributions would be taxable, although the 10% penalty would be waived.

Time to get a new accountant.

What you said is true John but don't forget he is talking about a Roth. If he can "day trade" and make money inside a Roth THAT IS THE BEST OF BOTH WORLDS ( how likely he will be successful is another matter).

Thanks Barry, I guess my recollection of reading it was not permissable was incorrect, or if I did read it the posting was incorrect. Actually, I have done a lot of reading and REREADING on this subject and couldn't understand why it would not be permitted.

To your hearts content.

Mels, An instance where interest would be taxed in the year earned would be when you overcontributed to an IRA and then withdrew that overcontribution. You are required to also w/d any earnings made on that overcontribution and they are taxable in the year earned, not the year w/d. The answer to your question is YES.

Thanks John, I don't think you have read 590 as closely as you think. Actually, recharacterization is not just for Roths. It is the ability to treat a contribution made to one type of IRA as having been made to another type of IRA. So it can go from an IRA to a Roth, although most talk on various websites is about from Roths back to TIRA'a. I realize how the Rechar works and that it is not "stock specific." I was talking about a Rechar of the entire account when I spoke of winners. I really have no intention of doing what was referred to in my initial post because I thought someone gave a reason why the earnings could not be transferred and because I don't feel comfortable playing "games" to get the last nickel from the tax man, even if it is permissible and legit. However, when discussing all the options available to a client I do not want to leave any out that they may be comfortible with and that is available to them.

I thought I read a post here that dealt with an individual who wanted to contribute to a TIRA and if the account REALLY appreciated to Recharacterize as a Roth. This would enable them to insure that only "winners" ended up in the Roth and that "losers" would stay in TIRA where you got a $2000 tax deduction. For example a $2000 TIRA contribution that had $2500 in earnings in 6 months would be Recharacterized as a Roth. That puts $4500 into the Roth on a $2000 contribution. I think that this idea was shot down for a reason that I do not recall. I've tried the search feature but have had no luck. Anyone recall it or know why this would not be permitted? It is essentially the reverse of the normal reason why Roths are recharcterized.

Contributions can be withdrawn at any time without tax or penalty. If the Roth has been open for 5 years AND you are withdrawing earnings there is NO tax and No penalty on the first $10,000 for a first time home buyer.

I don't see a problem with the wording. If the spouse does not make the IRA their own, they use their age in the year the spouse would have been 70 1/2 and decrease it by one every year thereafter. What do you see wrong that I am not catching?

Appleby, Thanks for the reference site. In reading the article however there appears to be an error in regards to withdrawals from a Roth before the end of 5 years. The article states that EVEN THOSE OVER 59 1/2 must pay the 10% penalty if the W/D is made before the 5 year term of the Roth. In the situation noted there would be NO EARNINGS because the individual is going to take a loss, so it is a non-qualified W/D but since the individual is over 59 1/2 the penalty DOES NOT apply.

It does not explicitly say you can take a loss in the Roth section. What it does say is that the same rules apply to Roth as traditional UNLESS those explained in the Roth section are different. To take the loss you must close ALL your Roth's and the loss is deductible on Schedule A, subject to the 2% limitation. There was a post on this board within the last 12 months or so where the poster mentioned that an IRS spokesperson at a California conference for some group had discussed it.

If memory serves me right a first time home owner for IRA purposes is someone who has not owned their own home for 2 years. So that eliminates your chance of using that exception in order to NOT pay the 10% penalty for early withdrawal from an IRA. If all your contributions were deductible than you will be taxed on the withdrawal at your applicable tax rate. Unless you have an exception to the early withdrawal rules; 59 1/2, disabled, etc. than you would also pay the 10% penalty in addition to the regular taxes. If all you are earning on your IRA is 3.4%in savings acconts C/D's you should consider talking to a financial planner.

Must an individual who made an invalid Roth contribution in 1999 apply for their own PLR? Or can they recharacterize as long as IRS has not discovered their original error? I saw on another website that a $500 fee must be forwared with a request for a Private Letter Ruling, is that ballpark?

Franky and Barry are correct, no penalties after 5 years on conversion amounts. Earnings are the monies your initial conversion had added to it. If your initial conversion was $10,000 and the value of the acount is now $11,250 then your "earnings" are $1,250. If your value is less than $10,000 than you have no earnings. To get back to your original question, you can withdraw All your funds from this Roth on January 1, 2003 with NO penalties or taxes. I would suggest however that if you have taxable savings accounts that they should be tapped before the Roth account.

I disagree with Franky. If you withdraw the conversion amount after 5 years and you are not 59 1/2,disabled,a beneficiary or First time home buyer, than it is NOT a qualified distribution and would then be subject to the 10% penalty unless one of the other exceptions to the 10% penalty rule applied. Check PUB 590 under Roth IRA's and read page 43 : Additional tax on early distributions.

The five year time frame starts on January 1 of the year a Conversion was made , or in your case January 1,1998. You can withdraw tax free and penalty free on January 1,2003 if you are (will be) 59 1/2.

YES. Your question was a perfectly worded description of how the Roth works for someone over 59 1/2.

This recharacterization is different than most posted on this and other boards. Out of curiosity I wonder if you would share with us WHY the client would want to do this, cosidering that the gains, leftin the Roth have the potential of being tax free, but the recharacterization would not?

Let me correct my previous post. You most have"taxable" income and since you do not have taxable income you can not contribute to an IRA.

To contribute to an IRA,traditional or Roth,you must have "earned income". As you do not have earned income, you can not contribute to an IRA.

The IRS expects that to show up on a Schedule D not B. If you have a computer or a 4 column pad you can track drips rather easy. If you don't want to figure the basis for cash in lieu payments use a basis of ZERO.

If you are and have been self employed and earned over $400 then you were required to file income tax returns AND PAY SELF EMPLOYMENT TAXES. Gather up your records since 1995 and go see a QUALIFIED tax preparer to file the LATE returns. The clock is running and so is the meter on your delinquent tax payments. Th e Roth is the least of your problems right now and it may be what will alert the IRS to you.