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Splitting IRAs before converting to Roths


Discover how to split IRA into smaller accounts.

Q: I am thinking about splitting my IRA account into smaller IRAs, converting them into Roth IRA accounts, and then investing each separately. That way, if any of them drop in value after the conversion, I can reconvert them. Will I be required to pay a 10% premature distribution tax upon conversion, and is this refunded upon reconversion? Will I owe any state income taxes? And can I move a Simplified Employer Pension Plan (SEP) IRA into a traditional IRA?

A: Before or after converting a regular IRA into Roth IRAs, it makes sense to split the assets into multiple IRAs with different investment tactics and then reconvert anything that has dropped in value so that you do not pay tax on assets that have lost value.

You are not required to pay a 10% premature distribution tax on assets converted into a Roth. To the extent that you reconvert funds back to a traditional IRA, the taxes paid are refunded.

Answer provided by Medical Economics editorial consultant David J. Schiller, Schiller Law Associates, Norristown, Pennsylvania.Send your money management questions to

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