@Serge wrote:
This is clearly more complicated than I thought. The distributions doesn't seem to cancel the contributions even if done in the same tax year and even if the account is now clear for distributions.
So even if distributions are equal to contribution for a tax year and the contribution is, lets say only $2K, one may be having to pay excess limits penalty if the income is too high to allow a $2K contribution.
Further, I am worried about the 1 time limit "rollover"per year mentioned. On this topic, does this 1 time per year limit applies to a traditional Roth conversion as well? For instance, converting $5K on February and another $5K in June to the same Roth from the same IRA: Is this allowed?
"The distributions doesn't seem to cancel the contributions even if done in the same tax year and even if the account is now clear for distributions."
Correct. Distributions and contributions are completely separate, have separate rules, and can't be combined to even each other out.
"and the contribution is, lets say only $2K, one may be having to pay excess limits penalty if the income is too high to allow a $2K contribution."
Correct, with some modifications. You can contribute to a traditional (pre-tax) or Roth IRA if you have compensation from working. If your income is too high to contribute tax-deductible contributions to a pre-tax IRA or a Roth IRA, you can still make non-deductible contributions to a traditional IRA. This creates a taxable basis in the account which means that a small part of your withdrawals in the future will be non-taxable. Making non-deductible contributions to a traditional IRA also creates a lot of paperwork because you have to track your basis, and I don't recommend it if you can avoid it, and you should get professional advice.
"Further, I am worried about the 1 time limit "rollover"per year mentioned. On this topic, does this 1 time per year limit applies to a traditional Roth conversion as well?"
It may. The once-per-year limit on rollovers only applies to indirect rollovers. This is where you get a check or electronic funds deposit from plan A, and you must deposit them in plan B within 60 days. In a direct rollover or direct conversion, plan A sends the money directly to plan B and you do not serve as intermediary. You can do as many direct rollovers--including IRA to Roth conversions--as you like, as long as they are direct plan to plan.
