Transfer from Traditional IRA to Roth IRA and any limitation.

[Guest cameo]

Even tho I see similar questions and answers in this forum I would like to hear it one more time all together. Given the following information can I transfer funds in an existing traditional IRA to an existing Roth IRA? I am aware that there are tax consequences. Is there a limitation as to the amount I can transfer or how many transfers can be made in a given time period? Is the llimitaion the same for traditional to Roth and traditional to traditional? Is this limitation the same for transfers from one institution to another and for transfers within an institution. Information; Age 63 married filing jointly with AGI less than $100,000 and no income from wages, salary, etc.

[John G]

Multiple questions... here is my attempt to cover them:

IRA to IRA: no limitation on $$, no limitation on numbers, many to one, one to many, etc. suggest that you use direct custodian to custodian and never handle a check.

Within a custodian vs between custodians: No difference in IRS rules come to mind. Custodian may have some limitations or fees on internal transfers - ask your custodian.

Traditional to Roth: This is a CONVERSION not a transfer, there are income limitations (which you may meet) and filing status issues (which you apparently meet filing jointly). You may make multiple conversions in many ways - at different times of the year, sending dollars to different locations. No limitation on dollars, but because of the tax consequences you should consider having your tax preparer do the math and show you the impact on your taxes. You can have a partial conversion or full conversion. You can convert in multiple years (as long as you qualify in each) to manage the tax impact. There is a limitation on 1 recharacterization in a year.... an issue that came up when dot.com investors wanted to "undo" a conversion when the stock prices collapsed.

I don't know if that covers all of your questions. It sounds like you may be considering a complicated transaction. You can do yourself a huge favor and keep out of trouble by talking to your tax preparer or accountant before you undertake the transactions. I also recommend that you discuss you plan with your current or future custodian. Be sure to understand what annual fees you will incur and any exit or termination charges. Complicated IRA transactions should not be directed to the "counter help" but rather to the back room IRS department which is more likely to know the rule and proceedure details.

[Guest cameo]

Thank you John G. Your reply is vey helpful. I have just recently transferred a traditional rollover IRA to another existing rollover IRA at another institution. The withdrawal and redeposit was made well within the 60 day period. I would now like to make another rollover IRA transfer but I was absolutely under the impression that I was limited to one transfer per year. Am I just plain wrong on this? I think I understand transfer and conversion, but I do not know what recharacterization is. And, looking at my original post , I see that I did not use the term 'rollover'. Does this change any of your response? I know that rollover IRAs have to be kept separate even tho I do not see the reasoning. All very complicated. Thanks again.

[John G]

If you took a check and then rolled over the funds to another IRA, then you are limited to just one such event in a year. You can still do a CUSTODIAN TO CUSTODIAN, direct transfer. C to C transfers is the preferred method for many reasons, custodians know how to do these and they often are completed in a few days, you don't have any witholding issues, no limits on number of transfers or rollovers, no time window for getting the funds redeposited.

The "take your check" version looks like a dispersment of funds... you had use for the funds for up to 60 days - and is probably limited for this reason. The 60 day option has multiple perils and too many people have gotten shafted taking this approach... failure to get the money back in, withholding issues, custodian fails to act in a timely fashion, etc.

No matter what approach you use or what type of transaction, you, the taxpayer, should monitor that the custodian gets the job done correctly. Catching an error early is a lot easier to get it corrected.

Recharacterization - to "undo" a Roth conversion, the reverse process of sending the money back to the regular IRA. Originally invisioned as the remedy for folks who converted and then found out they failed the income test.... it has apparently more often been used by folks who converted and then saw their assets shrink in a market downturn. By recharacterizing, they could avoid paying the taxes at the higher conversion level. Another proceedure that is complex and often gets screwed up... there are limitations, deadlines for completion, etc. I don't think this is likely to apply to your situation.

[Guest cameo]

Thank you for good clear answers. I appreciate.

[Appleby]

Just want to add that the once per year limit for rollovers is restricted to the assets that you rollover. Therefore, if you have multiple IRAs, you may conduct multiple 60-day rollovers.

The following example is from IRS publication 590- available at www.irs.gov

Example. If you have two traditional IRAs, IRA-1 and IRA-2, and you make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3), you can also make a tax-free rollover of a distribution from IRA-2 into IRA-3 (or into any other traditional IRA) within 1 year of the distribution from IRA-1. These can both be tax-free rollovers because you have not received more than one distribution from either IRA within 1 year. However, you cannot, within the 1-year period, make a tax-free rollover of any distribution from IRA-3 into another traditional IRA.

[John G]

Appleby, good catch. One PER IRA, not just one total.

I can not stress enough for folks to run their ideas past their tax preparer or accountant. Conversions, recharacterizations, rollovers, etc. The rules are unfortunately complex and some rarely mentioned issues like tax filing status can create problems. Some folks are moving around very large amounts of money, and buying a couple of hours of professional support time is ..... "priceless". While you will get some good ideas at this site, the devil is in the details and we are always straining to imagine all of the issues that someone forgets to include in their post. Your local professional knows you and your tax situation a lot better than we can.

It helps to have an independent pair of eyes looking over a transaction. It helps to have someone raise questions about if the transaction makes sense. In 1998, I did a number of transactions and my accountant was involved each time.

Opt for the peace of mind. Get help. A pro can also help you anticipate problems and show you how to avoid them in advance.

{I am not a tax preparer or an accountant, but I value their services.}

PS: The clock is ticking for some IRA transactions. Custodians get very busy at the end of the calendar year. If you plan a transaction that must be posted in 2003, get started now and double check it gets completed before year end. By mid-December, your chances of getting something done quickly erode.