IRA withdrawal & deposit ?

[Guest tom2]

I am over 60 y.o. I just withdrew $3000 from my traditional IRA in December of 2005. As well as transferring $3300 to my ROTH IRA. After making that withdrawal can I still put another $3000 into my ROTH IRA for 2005 or for that matter 2006? I have already made a $2000 contributions last year to my 2005 ROTH IRA before that withdrawal.

So in other words. Once you start to make withdrawals (traditional IRA) can you make a deposit (ROTH) after that?

Contributions for 2005 over 50 is $4500 or $5000?

[Appleby]

Your distributions from your IRA does not prevent you from making a contribution to your IRA. For instance, you may withdraw(distribute) an unlimited amount, but still make your IRA contribution assuming you have eligible compensation, and for Roth IRAs, assuming your compensation does not exceed the statutory limits. Regarding the amount you transferred to your Roth IRA…by transfer, you may mean Convert-right? If you are not sure, please check with your financial institution to make sure the movement of asserts was done as a Roth Conversion.

Contributions limits for 2005 and 2006 are:

2005------- $4,000 or $4,500 if you are least age 50 by 12/31/2005

2006------- $4,000 or $5,000 if you are least age 50 by 12/31/2006

Since you already contributed $2,000 to your Roth IRA for 2005, you can contribute an additional $2,500 either to your Roth IRA, your Traditional IRA, or you can split it between both for 2005.

Please let us know if you have additional questions.

Denise.

[John G]

An attempt to clarify:

You can put money into a Roth in two ways: (1) contributions and (2) conversion of an existing IRA.

Contributions: If you are 60 and taking money out of an IRA, my first question is do you have "earned income" to qualify for Roth contributions. Interest, dividends, IRA distributions, gifts, etc. don't count as earned income. There are no age restrictions for contributing. Taking an IRA distribution has no impact. But, there is a combination of required earned income, gross income (ceiling limitation) and 1040 filing status that does impact your ability to contribute to a Roth. Qualification to contribute is determined each year... so you can be knocked out one year and yet be eligible in the following year.

Conversions: A conversion occurs when you shift funds from your IRA to your Roth. Almost all conversions create a taxable event. Conversion qualification is determine separately each year, and the controlling facts are a combination of 1040 filing status and adjusted gross income. If possible, you want to convert in a year when your income is low.

Over 50: $4,500 is the max (including the $500 make-up) in 2005

If all this seems as clear as mud, please post more details about your specific circumstances and Appleby or I will take another shot at giving you an answer.

[Guest tom2]

Thank you Appleby and John G. My apologies for not thanking you sooner. Had to put this situation on the back burner.

Appleby: Yes I meant convert (transfer) to a ROTH. Yes I checked with my financial institution and the conversion was done properly.

John G: I retired last year on May 31st so I had earned income last year. I assume by what you said "Interest, dividends, IRA distributions, gifts, etc. don't count as earned income". that I do not have any earned income for 2006. Therefore, I can't make a contribution for this year. Is that correct? The only income besides what you mentioned above is from my pension that I receive monthly form my previous employer.

Thanks again.

Denise: I was born and raised in N.J. Now live in Seattle. Enjoy the cold weather. It couldn't be any worse then what we had this winter. About 39 days of rain in a 40 day period.

[John G]

Sounds like you have earned income for the partial work year - so you can open a Roth for 2005 at the $4,500 max if you otherwise meeting the filing status and max income requirements. Unless you do some consulting or part time work in 2006, you will not be qualified on your circumstances.

If your spouse is working, you may both be able to have Roths based upon her earned income.