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I was doing some reading about 403b rollovers and I'd like to know if my reasoning is correct. When I retire (age 55), I would be able to rollover my 403b into an IRA. Then, "if I qualify", I would be able to roll over my IRA into a Roth IRA.

1. Is this correct?

2. Would the Roth IRA not be subject to taxes when I start withdrawing?

3. "If I qualify" -- What are the requirements?

 

Thanks!

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I was doing some reading about 403b rollovers and I'd like to know if my reasoning is correct. When I retire (age 55), I would be able to rollover my 403b into an IRA. Then, "if I qualify", I would be able to roll over my IRA into a Roth IRA.

1. Is this correct?

2. Would the Roth IRA not be subject to taxes when I start withdrawing?

3. "If I qualify" -- What are the requirements?

 

Thanks!

1. Yes, though the IRA-to-Roth-IRA is technically a conversion, not a rollover.

 

2. It would NOT be subject to taxes when you start withdrawing (hence the reason for the conversion!), but it WOULD be subject to taxes at the conversion.

 

3. Depends entirely on what Congress says the requirements are by the time you're ready to do this. Currently, there are limitations based on income which I THINK are AROUND $150,000 or so for a married couple, but someone else will likely have a more accurate answer.

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Guest Sierra

At age 55 it is not in your best interests to convert from a traditional IRA to a Roth IRA. Let's do the math. What is left to covert after paying current income tax? Let's say 70 percent. So if we say you start with an IRA rollover account balance of $100,000 you will have a beginning Roth IRA balance of $70,000. Good for the US Treasury---bad for you and your family. Of note: These assumptions do not include any state or local income tax that might be due and payable.

 

Peace and hope,

Joel L. Frank

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Guest Sierra

The rollover and subsequent conversion to a Roth IRA at age 55 is also a bad idea because most withdrawals prior to age 59.5 are subject to the 10 percent penalty tax.

 

You would be much better off if you remained with your 403(b) because if you separate from service in or during the year you turn age 55 all withdrawals are exempt from the 10 percent penalty tax. If you have a high cost 403(b) effectuate a RR 90-24 Capital Transfer to a no-load firm.

 

Peace and hope,

Joel

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For your retirement planning, I suggest you go to www.irs.gov and download IRS Publication 575, "Pension and Annuity Income", and IRS Publication 590, "Individual Retirement Agreements". These are the definitive works on tax implications for most people's retirement.

 

How many years until retirement? Presently, you can contribute to a Roth IRA as well as a 403b account. In 2006, a Roth 403 should be available.

 

There are several factors which favor converting at least a portion of your 403b to a Roth IRA. In all cases, these factors are a function of the prevailing tax structure and your 403b's required minimum distributions (RMD).

 

If you feel that tax rates will be higher when you are 701/2 than when you are 55, at least a partial conversion to Roth makes sense.

 

Get a RMD table. If, during your life expectancy, the size of your RMDs push you into a higher tax bracket, at least a partial conversion to Roth makes sense; a Roth conversion will lower your RMD.

 

Get a RMD table. If you wish to leave an estate and the size of your 403b causes a tax problem for your heirs, at least a partial conversion to Roth makes sense; a Roth conversion will lower the tax burden.

 

My wife and I retire in 2006. We will wait until the mid term (2008) congressional elections to structure any conversions. We want to see if a flat or consumption tax is in favor by that time. If it is not, we expect tax rates to rise dramatically by 2012 and we will make every effort to make a substantial conversion by that date. When we make conversions, we will use prevailing tax tables as our benchmark; never will our conversion be so large as to move us into a higher tax bracket.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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I agree with Stubborn1..and would add that the decision to convert a lot one year or a little each year to a Roth depends on more information than we have...for example, if the existing funds are your sole income (until social security kicks in) you may not want to go up a tax bracket by adding conversion money to your income. You would be converting to a Roth but paying a high income tax premium...on the other hand you may be living frugally and be able to convert some IRA to Roth IRA without a big tax "hit"...This latter example is mine, and I have converted a fair amount each year that I could, while staying within a lower tax bracket, so the Roth can now grow tax free and ...bla, bla, bla,...the rest is history...

 

Congress doesn't have the nerve to go flat tax...we middle class types love our deductions too much...especially us older types who vote...But if taxes do go up, those of us who figured out the Roth advantages will be plain ole tickled.

 

Last thought: It's not for everyone...a teacher who has a regular income, who maxes their 403b, and then will retire and live off STRS and 403b doesn't seem to have much opportunity for Roth investing. Any thoughts? Happy St. Patricks Day (Thursday) Dan

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