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Questioner: Michael

Question: My wife and I each have a traditional IRA that we want to convert to Roth in 2010. We each also have separate IRA accounts made of pre-tax dollars from previous employer plans which will increase our tax burden on the conversion. In order to avoid this, I want to roll these latter IRAs back into employer plans. I have a current 401k who will accept the funds and my wife has a 401a plan who will accept the funds though she is no longer employed. Will this work?? When I read form 8606 instructions, it seems to me money in a 401 plan does not count toward IRA assets (though I'm not sure if it matters if it is a current employer or not). Thanks.

Answer: Michael, thanks for the question. Just to clarify, if you want to make a Roth Conversion for 2010 or any other year, you only convert what you want to convert. It is up to you. Just because your money is sitting in Traditional IRA's does not mean you have to convert it all. In addition, I always advise people to take their money out of 401k's and especially 401a's. They are fine while you are employed at that company and there is either matching contributions or profit sharing but once you leave take your money with you. Employer plans are usually filled with hidden fees and poor choices when it comes to portfolio construction and choices.

I would definitely recommend that you take some time to review your objectives and portfolio with a fee only Certified Financial Planner. It does not matter if your protfolio is tax free if it stinks.

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