Rollover of Traditional IRA in to Roth IRA.

[Guest skaranam]

1. I opened a Traditional IRA for 2,500 dollars couple of weeks ago with out realizing that I am not qualified because I participate in 401K plan and my combined AGI (including my wife's income) is more than 60,000. So, My next choice is to transfer this money in to Roth IRA. What is the last date to do that? Some where I read that I can do it until April 15, 2004. But on the home page of this site, it is mentioned as Dec 31, 2003.

2. In the above case, If I take distributions after 5 years, do I need to pay tax/penalty? I am 39 and I don't think of any qualifying reasons like first home etc.

3. Our combined AGI is about 90,000 and my wife doesn't participate in any retirement plan. So, I am assuming that I can open another traditional IRA account on wife's name and take deduction up to 3,000 dollars. Am I right?

Thanks.

[Appleby]

1. I opened a Traditional IRA for 2,500 dollars couple of weeks ago with out realizing that I am not qualified because I participate in 401K plan and my combined AGI (including my wife's income) is more than 60,000. So, My next choice is to transfer this money in to Roth IRA. What is the last date to do that? Some where I read that I can do it until April 15, 2004. But on the home page of this site, it is mentioned as Dec 31, 2003.

2. In the above case, If I take distributions after 5 years, do I need to pay tax/penalty? I am 39 and I don't think of any qualifying reasons like first home etc.

3. Our combined AGI is about 90,000 and my wife doesn't participate in any retirement plan. So, I am assuming that I can open another traditional IRA account on wife's name and take deduction up to 3,000 dollars. Am I right?

Thanks.

1) The December 31 deadline applies to converting your traditional IRA to a Roth IRA. However, in your case, a recharacterization would be more appropriate. A recharacterization results in the contribution being treated as if it was made to the Roth IRA in the first place.

The deadline for a recharacterization is October 15 of the following year (October 15,2004 for 2003 contributions) assuming you file your tax return by April 15.

2) For a discussion on paying taxes on Roth IRA distributions see the following threads

http://benefitslink.com/boards/index.php?s...14&hl=qualified

http://benefitslink.com/boards/index.php?s...18&hl=qualified

3) Assuming you file as “married filing jointly” your wife will be able to claim a full deduction of her traditional IRA contribution.