Roth IRA with lowest minimum?

[skinnybudget]

Re: Roth IRA with lowest minimum?

The amount that can be taken out is about $1200 + interest from one year. Maybe $1270 or so? I guess it could just be left in there, but I was thinking that since we're at a low tax bracket now we might not get taxed at all moving it to a Roth IRA. I expect our taxes to increase since DH will likely have a full-time steady job starting in the fall. He's a grad student now. At that point he'll have a pre-tax retirement account at his new job with employer contributions.

Then if we can move this money before the 2006 deadline into a Roth IRA we can still put in the max amount for 2007 later this year. Am I thinking too hard about this? I realize it's not all that much money but we recently started even thinking about retirement and I feel like we should make up for lost time.

[kv968]

Re: Roth IRA with lowest minimum?

The amount that can be taken out is about $1200 + interest from one year. Maybe $1270 or so? I guess it could just be left in there, but I was thinking that since we're at a low tax bracket now we might not get taxed at all moving it to a Roth IRA. I expect our taxes to increase since DH will likely have a full-time steady job starting in the fall. He's a grad student now. At that point he'll have a pre-tax retirement account at his new job with employer contributions.

Then if we can move this money before the 2006 deadline into a Roth IRA we can still put in the max amount for 2007 later this year. Am I thinking too hard about this? I realize it's not all that much money but we recently started even thinking about retirement and I feel like we should make up for lost time.

What you would have to do is rollover the money into a Traditional IRA and then convert that to a Roth. You won't pay any taxes on it that way. If you close the employer account and take the lump sum, the employer will withhold a mandatory 20% Federal Tax.

Your best bet would be to just roll it over into a Traditional IRA to avoid all taxes and possible penalties. However here's a caveat about the Roth. If I'm not mistaken, in order for the Roth conversion to have counted for 2006, that conversion would have had to been done by the end of last year. If that is the case, you can still convert it, you would just have to pay the taxes on it in 2007.

And no, you're not "...thinking too hard about this?". As you can see there's a lot of little sticking points to consider. If you're planning on using T Rowe (or whoever) for your IRA, I'd give them a call and get the ball rolling with the Traditional rollover. I'm sure they can provide better info as far as the Roth goes but get going with the initial rollover so at least the contribution itself counts for 2006 regardless where the money goes. You can always convert later.