401(k) to Rollover to Roth

[Guest Guacamole]

I left a job this spring where I had some assets in a 401(k). I put the assets into a roll-over IRA after I left and within the required window. This was approximately 5-1-99.

What I would like to know is:

1. Now that I have opened a Roth (8-1) and contributed my $2,000 for 1999, when can I convert the rollover IRA to a Roth? For some reason, I think I have to wait 12 months...is this correct?

2. When I do 1., will I be able to combine the coverted Roth and the Roth account I opened in August? There is no particular need to combine them, just simplification of record-keeping, etc.

I am aware that I may need to pay taxes on the conversion from the Rollover to the Roth, but that is a relatively small price to pay and it won't be a concern in this case.

Guacamole

[Guest Fishchick]

Hi Guacamole:

To answer 1, you don't have to wait 12 months to convert to Roth, the 12 month rollover rule does not apply to Roth conversions from Traditional IRA's. You should make sure you will be eligible to convert this year, however before you decide to proceed.

To answer 2, you don't have to keep the conversion $ in a separate Roth IRA account, since the IRS would view both accounts as one for purposes of future distributions anyway.

[Kathy]

I'm not sure I agree with the part about waiting until you see if you are eligible for a conversion or not - check into the basics of course - if you are sure your income will be too high or you know you are going to file a separate tax return from your spouse, then don't convert. But, if your income is generally low enough but there is a slight chance it might be too high, you can go ahead and convert now knowing that you can completely undo the entire transaction (recharacterization) by your tax return due date if necessary. If you have to undo the transaction, you should recharacterize back into a rollover IRA and then, since it is as if the Roth conversion never occurred, you can still roll that money back into a qualified retirement plan at some point in the future.

[Guest Fishchick]

Kathy is correct- I just meant to point out that there are eligiblity rules, and that if you will definitely not be eligible to convert, you should not convert, since recharacterizing, while not a really big deal, is going to take some extra work (contacting your IRA custodian, completing extra tax reporting, which is somewhat overwhelming for some people). I have found that many people have converted without even investigating eligibility, and therefore don't know if they must recharacterize.

[This message has been edited by Fishchick (edited 09-29-1999).]

[Guest Betty]

I currently have 2 rollover IRAs from 2 different 401(k) plans that I want to convert to a Roth IRA. Is there a limit to how many conversions I can make in a year?

Also, I have some money in a 403(B) plan. Can I roll that over to a rollover IRA and then convert that to Roth IRA also?

Lastly, can someone clarify on when I can withdraw money from the Roth IRA without penalty. I have read that I can withdraw my CONTRIBUTION whenever I want without penalty. It's the earnings that I have to wait 5 years and till I am 59 1/2 to be penalty free. Is that correct?