Ask Terry Questions Rollover IRA

Rollover IRA

By Terry Savage on February 22, 2017 | Financial Planning / Retirement

I had a 401k and rolled it over to IRA when I left that employer. If I want to convert some traditional IRA's to Roth will this older Rollover IRA count count in the conversion calculations?

Terry Says

I always advise keeping rollover IRAs and traditional IRAs separate.  But I'm not sure what you mean by "count"?  You should wait a year after the rollover to do a conversion with any portion of the 40l(k) rollover money to avoid issues regarding two rolls in one year. You can otherwise convert all -- or some portion -- of an IRA to a Roth.  BUT you should be aware that you must pay income tax on the amount rolled into the Roth.  That will be considered ordinary income in the year of the conversion.  And it can not only add to your tax bill, but if you are retired -- and depending on the amount, of course -- it could increase your payments for Medicare Part B, or impact other benefits that are determined by income.  PLUS,  you should have money OUTSIDE the IRA to pay those extra taxes, and you might have to make an estimated tax payment on that amount. But once converted, that money in the Roth can continue to grow tax-free -- and will never be subject to the RMDs of traditional IRAs.  

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