2010 Roth IRA Conversion: Gaming the system?

[Downfall]

Quick question:

I've generally perceived IRA's as an unattractive option for me, because my MAGI is too great to contribute to a ROTH IRA, and because I get a retirement plan through work, I can't take a deduction for IRA contributions. IRA's have therefore always presented a lot of restrictions without enough countervailing benefit.

I've been intrigued by the rollover option: https ://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/fidelity-roth-conversion&topic=saving-for-retirement [Sorry I couldn't make it a proper link, the forum won't let me; remove the space between the https and the :// to get it to work]

And, of course, it's possible to make contributions to an IRA counting against the 2009 cap until April 15, 2010.

So, is there anything stopping me from putting $5,000 in IRA 1 (for 2009) and $5,000 in IRA 2 (for 2010) on January 1, then converting both to a Roth IRA as soon as possible on, say, January 2? The only downside I see is paying tax on any interim appreciation, but that that shouldn't be much. It seems like an easy way to get around the restrictions on creating a Roth IRA. My time horizon is 30+ years, so the possibility of that much tax free growth is very attractive.

[KTP]

Yes, you can get around the stupid, unfair system by doing this, which is exactly what we are doing also. I have already set up the 2009 IRA and now just wait for 2010.

Be aware that if you have another IRA currently and have taxable gains in it, they will lump them with your non-deductable IRA during the converson for tax purposes. For example, if you have a 20,000 traditional IRA with 10,000 of that as a gain, and you try to roll over another IRA you just opened with 10,000 in it you will have to pay tax on 33% of the $10,000 you are rolling over. So in that situation, assuming you were in a 30% bracket, you would owe about $1200 at the time of the Roth conversion in taxes (my math may be off, it is early)

[Downfall]

Yes, you can get around the stupid, unfair system by doing this, which is exactly what we are doing also. I have already set up the 2009 IRA and now just wait for 2010.

Be aware that if you have another IRA currently and have taxable gains in it, they will lump them with your non-deductable IRA during the converson for tax purposes. For example, if you have a 20,000 traditional IRA with 10,000 of that as a gain, and you try to roll over another IRA you just opened with 10,000 in it you will have to pay tax on 33% of the $10,000 you are rolling over. So in that situation, assuming you were in a 30% bracket, you would owe about $1200 at the time of the Roth conversion in taxes (my math may be off, it is early)

Thanks for the tip. I do not currently have any IRA's-- I've focused on fully funding my 401(k) and making other kinds of investments-- so that's thankfully not something I don't have to worry about. I should therefore only have to pay income tax on the gains between opening the IRA and the conversion-- I can't imagine that will take more than a week on the outside, so it should be a trivial amount.