Limitations on types of funds eligible for conversion to Roth

[Guest tarhealer]

I am retired at age 69 1/2 and due to severe losses in my stock portfolio last year, I will have no income tax due this April. In fact, I will have a substantial loss carry forward into 2001.

I felt that this would be a good time to convert my IRA into a Roth IRA as well as moving my qualified TIAA-CREF funds to the Roth vehicle.

My TIAA-CREF plan allows me to make supplemental after-tax contributions. My question is this: would the supplemental cash also be eligible for transfer to the Roth without incurring another tax liability? Seems too good to be true.

[John G]

The normal process is to roll IRA assets into a Roth. Anything that can first be rolled into an IRA can subsequently be rolled into a Roth.

Be aware that you rarely can control the timing of the actual conversion as custodians typically stick requests into a que and proceed FIFO. This means you never know until the day action is taken the value of the assets you have shifted. Lots of odd things have been reported on this message board of transactions that got screwed up. It is important for you to track and confirm all the steps taken in the transaction.

I hope you are aware that you are limited to $3000 in terms of writing off losses greater than gains in any one year. You are still likely to have SSN, pension, dividends and interest. I highly recommend that you get professional assistance before you act. Let the accountant or tax pro play devils advocate. Also, a partial conversion often gives you much of the benefit while reducing your immediate cost. Ask your advisor too run some scenarios for you. You may want to convert part now, part next year if you think your income will remain low. Especially if the conversion creates tax bracket creep.

[BPickerCPA]

After tax contributions are NOT eligible to be rolled into an IRA and by definition are therefore NOT eligible for Roth conversion.