Roth IRA conversion question

**LuxLiving** · 10-09-2006, 03:53 PM

Re: Roth IRA conversion question

So they are selling out your mutual funds correct? And you are wanting to roll them over to another brokerage? They have to get them out of their books and I'd say yeah, they are going to charge you a fee for that.

You'd think FMV was the way to go and it is - yes that's the price you'll get on your rollover statements....but they have to cease their 'participation' as your broker and turn it over to someone else. Not to worry other than it being a pain in the watusi and being charged a fee...most brokerages seem to be a little on the hoarding side of the slow boat equation when you are taking their toys away.

Was I reading your intentions correctly? I'm not sure about an in-house transaction though.

**MonkeyMama** · 10-09-2006, 04:33 PM

Re: Roth IRA conversion question

Edited

**disneysteve** · 10-09-2006, 04:57 PM

Re: Roth IRA conversion question

I'm not clear on what you are doing. You say you are trying to "escape Merrill Lynch" but also say you are doing the conversion "within the same brokerage." Are you switching companies or not?

ETA: I see you want to move the money to Vanguard, so you are switching companies. The broker may be correct that you need to liquidate the holdings. And he may also be correct about any closed funds, most likely.

If you were just converting to a Roth at Merrill, you would be fine. But that's not what you are doing. You are closing your Merrill account and opening a new account at Vanguard. That might be handled differently. My suggestion would be to call Vanguard and ask to speak to a retirement account customer service agent. They are EXTREMELY helpful and I'm sure can answer this question for you.

Check this publication: http://www.irs.gov/pub/irs-pdf/p590.pdf

See page 59 "Can you move amounts into a Roth IRA?" Also, p.19 and p.27 have relevant info.

Bottom line is I think you can only rollover money, not equities, so you would need to close out your Merrill account and they would issue a check for the amount in the account. That check would go to Vanguard and be used to establish your new account.

**MonkeyMama** · 10-09-2006, 08:48 PM

Re: Roth IRA conversion question

Okay, I went off on a rant because I am pissed of at Merrill Lynch. & I have caused mass confusion.

LEt me start over.

Merrill Lynch says we can not rollover our Tradiitonal IRA into a ROTH without selling all our assets. These are asstes we are keeping in ML - we just want to redesignate the account as a ROTH IRA.

I think they are idiots.

This is a small piece in a big puzzle, but just wonder if this makes sense to anyone else? Dh's broker say this is something about a new law which I as a CPA have never heard of. I am sure I am right pretty much, but oh well, just curious if I am missing something here.

So far everyone seems to be ont he same page if you are not moving assets out, you shouldn't have to liquidate your assets.l

**kristinecfp** · 10-09-2006, 09:18 PM

Re: Roth IRA conversion question

Sounds like you are doing a Roth IRA conversion (instead of a rollover), in which case you do NOT have to sell your assets to complete this transaction. Maybe the ML rep is confused because you have to pay tax on the amount you convert to the Roth?

Anyway, there is some new legislation about Roth IRA conversions in the tax laws passed this year, but it has to do with the income limits and the ability to spread the tax on conversion over two years. I haven't seen anything related to the assets held in the IRA/Roth IRA in the new tax law.

Having worked in an investment company before, I know how reps can be mis-informed about tax laws. I'd talk to someone else at ML, and hope that they know what they are talking about.

**safari** · 10-09-2006, 10:00 PM

Re: Roth IRA conversion question

The ML person was incorrect in telling you that you have to sell the assets in your traditional IRA in order to convert it to Roth IRA. Here is the link to IRS Publication 590, which describes all the rules related to IRA and Roth IRA.

Here is an excerpt from page 59:

Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract.

**MonkeyMama** · 10-10-2006, 08:33 AM

Re: Roth IRA conversion question

Thanks.

I think he is just stalling because we want to move some of our assets out. And he is trying to stall stall stall. Everytime dh calls he has some other story. It is his IRA. I have no idea why he is being so difficult with the assets we wanted to keep there though - with all of this we decided to move it all out so it matters little. Fine you want us to sell it, then we are moving it.

I can't believe Mr. Merrill Lynch has done no ROTH conversions this year - that he has no clue you can just redesignate the account type to ROTH. I feel like he will say anything to stall. I Am so annoyed.

**disneysteve** · 10-10-2006, 08:49 AM

Re: Roth IRA conversion question

Originally posted by MonkeyMama

I can't believe Mr. Merrill Lynch has done no ROTH conversions this year - that he has no clue you can just redesignate the account type to ROTH. I feel like he will say anything to stall. I Am so annoyed.

Have you tried talking to a supervisor? If this guy isn't giving good service, it's time to go over his head.

**MonkeyMama** · 10-10-2006, 12:17 PM

Re: Roth IRA conversion question

No because like I said we are leaving. After this whole thing we have decided to just leave ML altogether. Which we were gonna do eventually anyway.

But You are right.

Dh's family has had this guy for years/decades and I never understood why. I butt heads with dh over this because he does not understand what a dutz he is. Since it his IRA he will probably see little reason to complain over his head. Not much I Can do since it is not my account.

I am just happy I finally talked him to moving out money out. 12 years too late if you ask me. Once we get his IRA moved out I am going to work on his family though. I just hope to set a good example, and say hey we don't need the middle man. Trying to inspire them...

In the meantime I have no idea why they put up with it... Oh well, just glad I don't have to anymore.

**markusk** · 10-10-2006, 12:18 PM

Re: Roth IRA conversion question

Hey there,

Newbie here. This forum is very informative!

I also had a similar question as Monkeymama.

I currently have a 403b with tiaa-cref but want to convert it to a Roth IRA with Vanguard. My reasons are many, but here are a few: I switched jobs recently and my new employer does not match my contributions. Also, I like the idea of withdrawling money tax free when I retire. Furthermore, although tiaa-cref is a good company, their earnings to comparable Vanguard funds consistantly earn less. And finally, their quarterly statements are confusing (if not misleading) -- if my account grew by 8% in the last quarter, this includes the amount that I contriubuted for that quarter, so my account actually grew by less than 8%, but I have to do the math myself to figure this out.

Hopefully, my question makes sense: since my tiaa-cref 403b is pretax contribution (and grows tax delayed), when I convert it (rollover?) to a Vangurad Roth IRA (which is post-tax and grows tax free) do I have to pay any tax?

Thanks,
markusk

**sweeps** · 10-10-2006, 12:21 PM

Re: Roth IRA conversion question

Originally posted by markusk

since my tiaa-cref 403b is pretax contribution (and grows tax delayed), when I convert it (rollover?) to a Vangurad Roth IRA (which is post-tax and grows tax free) do I have to pay any tax?

Unfortunately, yes.

**MonkeyMama** · 10-10-2006, 12:59 PM

Re: Roth IRA conversion question

Yes. We timed our rollover this year because we will be in a significantly lower tax bracket this year than we will in future years.

IT hurts this year, but for the best long-term.

Something else that brokerages do not really make clear is if you take the money out of your 403b funds for the taxes, you will be taxed a penalty of 10% on the funds withdrawn to pay the government. I know this as a tax accountant and I Was shocked with the 3 rollovers I did this year that all 3 places asked if I Wanted to wihhold taxes, and did not point out the withholding would be penalized. I imagine it is a trap that a lot of people fall into.

So basically my advice is move in the lowest tax year as possible AND to pay the taxes out of other funds. Pay in as an estimate to the IRS to avoid penalties as well, if it is a large amount and your regular withholding does not cover it.

**markusk** · 10-10-2006, 06:18 PM

Re: Roth IRA conversion question

Wow, thanks for the info. Am I glad I found this site!!

Perhaps I should rethink about converting the 403b to a Roth IRA.

Since my new employer does not match, is it better to start a (new) Roth IRA, max it out, THEN contribute to the 403b?

--markusk

**sweeps** · 10-10-2006, 06:53 PM

Re: Roth IRA conversion question

Note that you can still rollover your 403b to an IRA at Vanguard. It won't be a Roth IRA, but at least you can take advantage of Vanguard's funds. You can always convert to a Roth later if the right situation comes up.

Yes, usually maxing out your Roth and then contributing additional savings to a (non-matched) company plan is the best way to go. If you did have a match, max out the match, then switch to the Roth, and then switch back. Of course there are exceptions, but this is a good rule of thumb.

Roth IRA conversion question