Regular Contribution to a Conversion Roth IRA

By Kaye A. Thomas
Current as of November 15, 2013

It’s OK to make regular contributions to a Roth IRA you established by converting a traditional IRA.

For a while after the Roth IRA was created there was some confusion about whether you might be creating a problem if you made regular contributions to a conversion Roth IRA, but a law passed long ago cleared up that situation. You can use the same Roth IRA for both purposes, avoiding the extra paperwork, and perhaps added fees, involved in maintaining two accounts. There’s just one small advantage in keeping these items in separate Roth IRAs.

A small advantage

When you do a Roth IRA conversion, there’s a possibility that you’ll want to undo it. You may run into severe market losses after the conversion and decide it makes sense to undo this conversion and try again next year. Similarly, you may want to recharacterize a regular contribution to a Roth IRA if your circumstances change before the end of the year.

You can recharacterize a conversion or contribution even if you’ve made regular contributions to a conversion Roth IRA. You may have more flexibility in doing so, and less complexity, if your conversion Roth IRA is separate from the one that has your regular contributions. This is because of the income allocation that’s required when you undo a conversion. If the conversion money is in a separate IRA, you don’t have to worry about an income allocation. You simply undo the conversion for the entire amount that’s in the conversion Roth IRA.

This is a relatively small advantage that normally wouldn’t justify the added paperwork — and perhaps added fees — of maintaining separate Roth IRAs. Yet if you believe there’s a reasonable chance you’ll want to recharacterize a contribution or conversion, you may want to consider keeping the two in separate Roth IRAs, at least initially. Later on you can combine them if you wish.