ROTH: As Easy As One, Two Three. Four, Five, Six, Seven January 26, 1998February 3, 2017 From Paul Siu: I remember reading about Roth IRA in your column and decided to give Roth a look. However, I found that Roth has some hidden complexities. I have a small 401K, and a small IRA. I want to contribute to an IRA [before April 15, 1998] for the 1997 tax year. Finally, I want to convert all of them into a Roth IRA. I also want to make a Roth contribution for 1998. After [several phone calls], I concluded that I have to: Set up a roll-over IRA to roll in the 401K. Apparently, 401K has to be rolled over to a roll-over first. Set up a traditional IRA to roll over my IRA. Make the 1997 contribution to the newly established traditional IRA since Roth is not available for 1997. Set up a Roth IRA to roll in rollover and traditional IRA. This is the Roth Conversion IRA. Set up another Roth IRA for the 1998 contribution. This is the Roth Contribution IRA. Apparently, the IRS requires that the conversion IRA and contribution IRA be kept separate. Transfer the rollover and traditional IRA into the Roth Conversion IRA. Close the rollover IRA account. Make the 1998 contribution to the Roth Contribution IRA. Close the traditional IRA account. I have to set up 4 accounts! This is crazy. After the process is over, we end up with two Roth IRA’s — Converted IRA and contribution IRA. The two IRA’s cannot be mixed, at least for the present. In both IRA’s, you must wait 5 years before you can withdraw without penalty. You can contribute more money to the contribution IRA. Each contribution is marked by a year so that the IRS will know how long ago you contributed the money. However, you cannot contribute money to the conversion IRA. Will the conversion IRA and contribution be separated forever? No one really knows. The best guess is that because the taxes may be paid over 4 years when you convert from a traditional to a Roth IRA in 1998, the IRS wants to set apart the conversion IRA for record keeping purposes. At some point in the future, they may be able to reunite again. And to think there was a time I was getting real money for every copy of TaxCut tax-preparation software that was sold! If I still had that deal, can you imagine how rich the Roth IRA — and other of Congress’s latest tax simplifications — would have made me?