Regular Contribution to a Conversion Roth IRA

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

The law is perfectly clear, and always has been, that you can make regular (non-rollover) contributions to a rollover Roth IRA. At one time it appeared that Congress would pass a law that would make it undesirable (but not illegal) to do so, at least in some circumstances. But Congress never passed that law. In fact, on July 22, 1998 President Clinton signed a law that makes it completely unnecessary to keep rollover and non-rollover money in separate Roth IRAs. For a while there was confusion over this point, but we expect that by now nearly all IRA providers understand that there's no need to maintain separate Roth IRAs.

A Small Advantage

When you do a Roth IRA conversion, there's a possibility that you'll  want to undo it. Perhaps you'll have an unexpected bonus and exceed the income limit — or 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 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.

by Kaye Thomas, author, Tax Guide for Investors