Converting Roth IRA into usual IRA

[argo]

Hi people,

If I got it right, the difference between the two is the time of taxation. In the Roth taxes are applied now and with the usual they are applied now. Right?

If so, I think I need to convert my Roth Vanguard into usual IRA. Does anybody know how to do this and how much money I would loose?

[yellow heel]

Re: Converting Roth IRA into usual IRA

Roth gets taxed NOW so if you have a lot of time til retirement, then IMO roth will be better. Plus there will be no suprises later when you need the money!

[ren]

Re: Converting Roth IRA into usual IRA

Roth: paid with after-tax money now; in return, you get the money tax-free when withdrawn during retirement.
Traditional: paid with pre-tax money now; therefore, money is taxed when withdrawn.

As Yellow Heel said, if you have a lot of time, a Roth may also be better -- if it has a long time to grow, that's a lot of growth to be taxed. Also, I believe that if you contribute to a 401k through work, you aren't eligible to deduct a traditional IRA (thus losing the important advantage of using pre-tax dollars), so if you have a 401k, you should probably leave it in the Roth for the advantage of tax-free withdrawals.

[tinapbeana]

Re: Converting Roth IRA into usual IRA

for me the biggest advantage is that a roth gives me tax free *earnings*, which means if i am lucky and manage my roth well and get a high growth rate, i won't have to pay the government for my savvy management when i pull the money out.

my 401k on the other hand was earning 12-18% for the past few years, which after inflation and paying taxes won't turn out to be too much.

[sweeps]

Re: Converting Roth IRA into usual IRA

I don't think it's even possible to convert a Roth IRA into a traditional IRA. To take advantage of pre-tax retirement savings, you must make the contribution(s) in that tax year.

Contrary to popular opinion, a Roth IRA is not necessarily better than a traditional IRA. Given reasonable assumptions, a Roth IRA will be better for most people, but that's not the case for everyone. Without knowing the future it's impossible to say for sure.

Actually, you can contribute to both a company retirement plan and a traditional IRA (or Roth IRA for that matter). However, the amount you can deduct depends on your income. Pub 590

[sweeps]

Re: Converting Roth IRA into usual IRA

for me the biggest advantage is that a roth gives me tax free *earnings*, which means if i am lucky and manage my roth well and get a high growth rate, i won't have to pay the government for my savvy management when i pull the money out.

my 401k on the other hand was earning 12-18% for the past few years, which after inflation and paying taxes won't turn out to be too much.

In the 401k case, you're growing a larger amount by 12-18%. True you won't get taxed later in a Roth, but you're starting with a smaller amount so it won't grow as much. All things being equal, there is no difference in the long run between the two. (Granted, not all things are equal -- that's where things like present and future tax rates and present and future income levels come into play.) Inflation affects both equally, so that is not a factor.

[disneysteve]

Re: Converting Roth IRA into usual IRA

The general consensus among those in the know is that we are currently enjoying historically low tax rates and they won't last forever. So when you retire in 20 or 30 years, chances are good that tax rates will be higher than they are today. Hence the appeal of investments that provide tax-free income in retirement. But of course, nobody knows this for sure.

[sweeps]

Re: Converting Roth IRA into usual IRA

"Beware the general consensus." -- Sweepsplayer

[disneysteve]

Re: Converting Roth IRA into usual IRA

"Beware the general consensus." -- Sweepsplayer

Well, the part about current rates being historically low is true. Its the prediction of how long that will last that we can't be sure of.

[Hypersion]

Re: Converting Roth IRA into usual IRA

You could pull your contributions tax-free from your ROTH IRA and than place them into your usual IRA. But you could only do this with $4k a year.

[tinapbeana]

Re: Converting Roth IRA into usual IRA

one of my main reasons for liking a roth is that the contributions can be withdrawn without penalty if needed (as taxes have already been paid on them). so if i happen to retire early (HA!), i don' t have to worry so much about fees, penalties, ages, etc to access my money...

and thanks for the info regarding taxes vs rates of return. while the percentages i gave in my post are accurate, i only have certain funds i can choose from w/ my existing 401k (which i can no longer contribute to b/c it's w/ another ocmpany). a roth would give me the options of many more funds, and there's always a possibility my returns could be better (or worse, i know! *g*)

[Diolla]

Re: Converting Roth IRA into usual IRA

i only have certain funds i can choose from w/ my existing 401k (which i can no longer contribute to b/c it's w/ another company).

FYI-If you are no longer employed by the company that has your 401(k) you could roll it into a traditional IRA and have plenty of funds to pick from.

[tinapbeana]

Re: Converting Roth IRA into usual IRA

FYI-If you are no longer employed by the company that has your 401(k) you could roll it into a traditional IRA and have plenty of funds to pick from.

that is what i'm going to do: roll from a 401k to a regular IRA. it's whether i want to roll from the regular to the roth afterwards i'm not sure about, although the fact that the money is IMO a little more liquid in a roth is a big selling point.

my previous 401k plan was set up so one could take a 'loan' out on the contributions and you would then pay yourself back with interest, which made the money available if it was needed. i'm not sure that a traditional roth would offer such a program, and therefore the money would be completely locked up unless i was willing to pay the requisite fees to access it.

[creditcardfree]

Re: Converting Roth IRA into usual IRA

argo, if you talking about just this years contribution that you made to a ROTH and now want to change it to a Traditional IRA in order to get a tax deduction, this can be done by contacting Vanguard's customer service. I'm sure they just need to retitle the account.

I don't think you would lose any money because it is simply a transfer of assets. You would still owe the same investment or mutual fund, right.

Changing from a roth to a traditional ira is often referred to as a recharacterization. This happens frequently to those who realize that they are not eligilbe for a roth and need to convert it back to the traditional.

Again, just contact Vanguard and they will know exactly what to do.