Mixing Roth IRA Contributions

[Guest batberf]

What are the ramifications/limitations to adding yearly contributory amounts to a Roth IRA that has been converted from a regular IRA?

I realize there is a five-year period that has to be met from the time the regular IRA is converted to the time the conversion amount (not earnings) can be withdrawn penalty-free.

Am I allowed to mix annual contributions to the same account, or should I open a second Roth IRA account for annual contributions? What if I had an additional regular IRA to convert; should I open a separate account or convert it into the existing account?

Is there additional paperwork that must be maintained if the monies are combined into one account?

[papogi]

Back in 1998, custodians thought that conversion Roths needed to be separated from contribution Roths. Regs were clarified since then to say that they can be combined, although some custodians may still want them segregated. Once your conversion Roth has been there for 5 years, then there are no complications. The complications come in determining taxable portions of distributions taken from Roths before the 5 years has elapsed. And those complications are even worse if there are multiple conversions at different dates in the same conversion Roth. For your own peace of mind, you could segregate the conversion Roths for at least 5 years, get past any complications, then do a custodian to custodian rollover into another of your Roths if you wish. If you are very sure that you will not take any early distributions, combine them all and take the 5 year risk. Once it passes, there's no problem.

[John G]

The additional paperwork and increased time can also come from having too many accounts to monitor. I suggest that simplification has some virtue in easing the burden on the taxpayer. As shown in other message threads, folks have been hurt when they have not tracked various transactions to be sure they were done timely or correctly. The more accounts you have, the greater the burden, the more likely and error slips past. One unfortunate consequence of the Roth bill is the proliferation of new accounts. We can be our own worse enemy by splitting things further between mutual funds, work vs personal, rollovers, adults vs kids, Roth vs regular, etc.