| Sargent & Lundy Savings Investment Plan |
| CONSOLIDATING IRAS |
| The following excerpt is from the May 1998 "Retire
With Money". The opinions of the author, Lani Luciano, may or may
not reflect those of the SIP Committee.
Q. My IRA consists of both deductible and nondeductible contributions plus earnings. I know this will create an arithmetic headache when I start tapping the money. I'll have to calculate the tax on each withdrawal as if it contained the same ratio of taxed to untaxed cash as there is in the entire account - and this ratio will change for each withdrawal. What if I were to transfer all my nondeductible contributions into a Roth account? I wouldn't owe tax on the transfer because the money was already taxed, and I wouldn't owe tax when I make withdrawals from the Roth because, after five years, they're tax-free. All the money in my old IRA would then be taxable so that I wouldn't have to compute proportional withdrawals. Can I do this? A. You can simplify your retirement accounts but, unfortunately, not in the way you describe. Money you transfer to a Roth would be subject to the same proportional rule as any other withdrawal. So you'd have to figure the percentage of taxable and nontaxable funds and pay taxes accordingly. What's more, if you left any money in the old IRA, each future withdrawal from that account would require the same tedious calculations. Here's what you can do instead: Before you start withdrawals, transfer ALL the money in your old IRA to a Roth IRA. Yes, you'll owe taxes on the untaxed funds if you move them - but if you switch in 1998, you can lessen the pain by spreading payment over four years. And a Roth won't give you math migraines to spoil your retirement. |
This page updated on 4/1/98