Regarding equities v. cash, maybe I don’t understand what you mean, but I thought this was account-based. For example, we have an IRA account funded through the years by a couple of rollover 401ks from past employers. The money within the IRA account, for better and worse, is invested in several different equity funds. If we sell the funds and buy T-bills, or the like, the monies are still under the “umbrella” of the same IRA account.
We are in the max tax bracket (net incremental Fed and Cal is around 42% excluding SEF taxes which are not avoided by these plans). If we “convert” one or more of our existing IRA, 401k, 403b, 457 accounts to after-tax Roth status by paying the taxes in a lumpo sum, can we continue to contribute the same annual amounts to the accounts “after tax” from now on, despite our income being over the traditional Roth limits?
Or, can we just “convert” what we have in the pot as of Jan 1, 2010, and then go back to before-tax contributions (making for an accounting Cluster Shucks situation by the time we retire)?
I’ll take all free advice from anyone who has some insight on this stuff. Thanks.[/quote]
Yes, your umbrella comment is correct. This means you are able to convert to cash if you want, without get hit with a tax bill.
The conversion law has no expiration. Even though you cannot contribute to the Roth in 2010 or 2011, you can convert prior year’s contributions in traditional every year going forward. Crazy, huh? No wonder everyone complains about our tax system.
By the way, your initial lump conversion tax might not be as large as you think. I assume you have been making post-tax contributions to traditional IRA’s since your income limit is too high for the Roth. The only portion taxable upon conversion is the gain on the post-tax amount. Your tax returns should have a running tally of the tax basis of your traditional IRA’s on form 8606.