yet another trad to ROTH conversion question

[Guest annasdayz]

Apologies in advance if this has been covered.

I have a (very) small traditional (rollover) IRA account. My past employer created a retirement account for me, when I left they required that I roll it over or take it as income.

I would like to open a ROTH IRA and make a maximum contribution for tax year 2000 (before 4/15/2001). I would also like to convert the above mentioned traditional IRA into the same account. My discount broker seems to think it's no problem. I seem qualified, my AGI is below $95K (I'm single).

1. Does the conversion affect the allowable contribution amount for 2000? for 2001?

2. Do I handle the contribution on my taxes for 2000 and the conversion on my taxes for 2001?

Thanks in advance,

Anna

[John G]

1. Conversion is a totally separate issue from standard 2k contribution, you can do both if you qualify.

2. No tax implications for 2000 as Roth's are not deductable. Roth conversion has a tax consequence for the year in which the conversion was made... so if now it would be reported on your 2001 tax return.

Note, you can also make your 2001 contribution now if you feel your are likely to qualify.

[Appleby]

If I may just step in here.

In response to your second question, the answer is yes. You should report the contribution on your year 2000 taxes and the conversion on your 2001 taxes. Do not forget to file your IRA Form 8606, which is required or any Roth IRA reportable transaction .

In response to your first question, the conversion will not affect your AGI with respect to your eligibility to convert. This means that even if the conversion brings your AGI to over the $100,000 limit, you may still convert. However, it is a different issue with the contribution. If the conversion pushed you MAGI over the $110,000 limit, thne you are not permitted to contribute to a Roth IRA. If your MAGI is between $95 and $110 000, then you have a phase-out range for the contribution amount.

Check out IRS publication 590 at http://www.irs.gov. Go to forms and publications, then publications online.