Convert Cash Balance Plan to IRA?

[DermRes]

Hi all,

My wife's previous employer made contributions to a Cash Balance Plan on her behalf. She has I think $6,000 in there or so now...... can we convert this to a traditional IRA, then convert to that to a Roth? (We make too much money to CONTRIBUTE directly to a Roth, but can we just CONVERT the CBP directly to a Roth and then pay the associated taxes to skip a step in there?).

We have also done the same with some other small previous 403b money, etc we had from residency lying around. It is my understanding that these are considered Roth CONVERSIONS and not CONTRIBUTIONS, so therefore they do not apply to our yearly Roth contribution limit......so after all of our conversions are complete, we can still each contribute $5,500 directly to a Roth for 2016?

Thanks for your help in advance. Will be nice to get all of these accounts tidied up.

[MollyStaniferCFP]

DermRes,

You are correct in your definitions of conversion vs contribution. There are no income limitations in making Roth conversions. And, there is no limit to the amount you can convert. But, of course you need to claim that $6,000 as additional taxable income, which may not be the best choice for you if you are in a high enough income tax bracket that does not allow you to make a Roth contribution.

A lot of employer retirement plans (not all) allow you to convert directly from the plan to a Roth IRA (instead of rolling it into a traditional IRA and them converting to a Roth IRA).

 

[DermRes]

Thank you Molly!

This year we will hit the 28% bracket, but next year and in future years we will be in the top 39.6% bracket. A good problem to have, but will be best to take the additional taxable income hit now. And we both are in our early 30's, so the Roth money will have a long, long time to grow.

Hopefully hers will allow a direct CBP --> Roth IRA conversion to save us the extra hassle of the additional step.

Thanks again,

Derm

 

[litovskyassetmanagement]

DermRes wrote:

Hi all,

My wife’s previous employer made contributions to a Cash Balance Plan on her behalf. She has I think $6,000 in there or so now…… can we convert this to a traditional IRA, then convert to that to a Roth? (We make too much money to CONTRIBUTE directly to a Roth, but can we just CONVERT the CBP directly to a Roth and then pay the associated taxes to skip a step in there?).

We have also done the same with some other small previous 403b money, etc we had from residency lying around. It is my understanding that these are considered Roth CONVERSIONS and not CONTRIBUTIONS, so therefore they do not apply to our yearly Roth contribution limit……so after all of our conversions are complete, we can still each contribute $5,500 directly to a Roth for 2016?

Thanks for your help in advance. Will be nice to get all of these accounts tidied up.

Click to expand...

Yes, you should do the backdoor Roth if you've already maxed out all of your tax-deferred space.  You should be able to do a direct to Roth rollover of your CB plan money.  You can't convert CBP to Roth inside the plan itself, the money would have to be moved to a Roth IRA.