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Roth Conversions and Rollover Rules and more | Client Q&A

AdMail Podcast

In this week’s episode, IRA Financial’s Adam Bergman answers questions about Roth IRA conversions, why you can’t roll over a Roth IRA to a Roth 401(k) and some insights about the LSATs.




Here are three more questions being answered by IRA Financial president, Adam Bergman, in the third episode of AdMail. This week, Adam answers questions about doing a full or partial Roth conversion of Self-Directed IRA funds, his thoughts on why you cannot convert Roth IRA funds to a Roth 401(k) and talks about being a tax lawyer and getting through the LSATs. Let’s get down to business!

Question 1 from Lisa A. in Dallas, TX: I have a checkbook control Self-Directed IRA LLC and my IRA owns 100%. The IRA is pre-tax. How would I do a Roth conversion and can I do a part conversion?

Lisa’s Self-Directed IRA owns 100% of the LLC and she is the manager of the account. This allows her to make investments when and how she sees fit. Currently, the account is “traditional” or pre-tax. This means taxes are deferred and not due until withdrawing from the plan. However, she would like to convert some (or all) of it to a Roth IRA. Roth IRAs are tax-free, meaning there is no upfront tax break, but all qualified distributions are tax free.

Lisa simply needs to do an in-kind transfer or conversion of the assets in the IRA. Basically, she converts the ownership of the LLC from traditional to a Roth. Of course, any amount converted is taxable. You pay the taxes now, so your holdings can continue to grow on a tax-free basis. The conversion is straight forward if you just have cash in the plan. You may convert any or all of it (and pay taxes on the amount converted). However, if you are invested in alternative assets, like real estate, you must figure out the fair market value of all investments in the plan.

Converting the entire traditional Self-Directed IRA to a Roth does not change your filing. However, if you do a partial conversion, your LLC will be treated as a Multi-Member LLC instead of a Single Member LLC. This is because the LLC is owned by both a traditional and Roth IRA. You’ll need to file a different tax form. However, no taxes will be due.

Question 2 from Tina K in St. Louis, MO: I don’t understand why I cannot roll over Roth IRA funds to a Roth 401(k) – makes no sense. Do you have an a good answer?

To put it bluntly, Mr. Bergman doesn’t understand it either! It makes no sense and there is no concrete answer, even from the IRS. Just about every other retirement plan can be rolled over to a different one. In fact, you can roll Roth 401(k) funds to a Roth IRA, but not vice versa. It really does not make much sense.

In reality, most people would not look to roll over Roth IRA funds to a Roth 401(k). Usually, it’s just the opposite, since IRA generally offer broader investment choices, plus there are no required minimum distributions or RMDs. However, if you are self-employed and have a Roth Solo 401(k), you may wish to move your IRA funds into it to take advantage of some favorable rules there.

Question 3 from Meghan M in Albany, NY: Adam – I see you were a tax lawyer before starting IRA Financial – my son is thinking of taking the LSAT? What do you think?

In all honesty, Mr. Bergman didn’t dream of becoming a lawyer! In fact, after receiving a degree in political science from McGill University in Montreal, he would’ve preferred travel. His dad said that he couldn’t do anything with that degree, and not even get a job, other than becoming a waiter. His dad asked why not write the LSAT. The rest, as they say, was history. He became a lawyer and got a well-paid job at a big law firm in NYC. But, that too was never his calling. That’s when he went out on his own and started up IRA Financial.

Obviously, it’s a great education, however the cost of it has gotten extremely high. Adam’s advice is to write them if you really want to become a lawyer. Then, go to the best law school you can. If you are unsure, you should still take them and see what happens. Find a decent school and see how the first year goes. That’s generally the make or break year. If all goes well, continue with it. If not, you can still change career paths.

AdMail – Keep it Coming

We hope you enjoyed the latest episode of AdMail. Mr. Bergman will continue to respond to questions each week so long there is a demand for them! If you have any questions for him, email him at [email protected].

As with his other podcasts, you can check out AdMail on SoundCloud. Be sure to subscribe to know when the next one pops up! Thanks for listening and have a great day, Self-Directed Nation!

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