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IRAs and Roth IRAs
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Re: Solo 401K question and IRA conversion for 2010 prep

I'll answer the easy questions first.

Money in your SEP needs to be factored in with your other IRAs when determining how much of your Roth Conversion will be taxable to you in 2010.

And if you rollover your IRA into your Solo 401k, that rollover should not reduce your $16.5k of allowable salary deferrals this year. My question to you would be whether your Solo 401k is set up to accept IRA rollovers.

For your last question, I'm not 100% sure what the correct answer is, and I need to find out the actual rules. On one hand, rolling over your rollover IRA into a non-IRA retirement plan should reduce the taxes on your Roth conversion. I'm just not sure you would not need to allocate some of your IRA basis to that rollover.

The professional staff of my office meets every Tuesday to go over various tax issues. I will hand out this question at the meeting, and ask everyone to research this issue so we can all know the correct rules for 2010.

I'll post what I find out when I find it out.

Zip Code: 01801

Re: Solo 401K question and IRA conversion for 2010 prep

Great news!! We found this answer in IRS Publication 590, Individual Retirement Accounts:

Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA:

Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution could not be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or do not roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible.

Zip Code: 01801