Traditional IRA contribution and immediate rollover

[Guest jlee]

Hi,

I'm over the AGI limits for contribution to a Roth IRA and am thinking of doing the following:

1. Opening a traditional IRA

2. Contributing $5000 for TY 2009

3. Contributing $5000 for TY 2010

4. Immediately converting to a Roth

Is this possible, or do I need to wait 60 days after the initial 2009 contribution before converting the traditional IRA to a Roth to prevent the conversion from being treated as a 2009 conversion?

[txdd]

A few points:

Any conversion in 2010 is a 2010 conversion.

You must have W-2 or SE earnings in 2009 and 2010 to support your contributions.

Report your non-deductible IRA contributions on Forms 8606 for both 2009 and 2010.

Very important ... The taxability of your Roth conversion is determined in combination with ALL your traditional, SEP, and SIMPLE IRA's, not just this one. The conversion will probably be partially taxable if you have any other IRA's.

[Guest Rajeev]

You can do the conversion immediately after the contribution to a traditional...

Points to note that while you may take a deduction on your traditional IRA qualified contributions for 2009 which could lower your income tax rate, the conversion from the traditional to the Roth IRA will be done in 2010 while will add to your income for 2010 and could increase your tax rate (i.e. if you jump tax brackets)

[Guest Sieve]

Except that, if you do not make an election when filing your 2010 tax return with respect to the Roth conversion, then half of the amount converted in 2010 is includible in your income in 2011, and the other half in 2012.

[GMK]

..half ... is includible in your income in 2011, and the other half in 2012.

which probably reduces your taxes, but keep in mind that current tax rate reductions sunset after 2010, so tax rates go up next year unless the federal tax laws are revised (which is likely but without form or substance yet).

[Guest redsands]

If you have any other TIRA's, SEP's laying around you need to either convert them too or move them to a qualified plan like a 401k. Otherwise, the proration could really hurt your tax bill.