Roth conversion with a closed fund

Tarwheel

This may be common knowledge, but I recently realized that I could do a partial Roth conversion from a closed fund to expand holdings in it. I’ve been fortunate to own ARTKX in my rollover IRA for many years, from nearly its inception. My Roth IRA was invested with T Rowe Price, which has rather pitiful foreign funds. In trying to figure out how to upgrade the foreign investments in my Roth, it dawned on me that I could try converting a portion of the ARTKX shares in my rollover IRA to my Roth. The conversion worked, so my next step is to sell the TRP fund (PSILX) and invest the proceeds in ARTKX. I’m ashamed that it took me so long to realize this, as PSILX has been a poor performer.

msf

Most fund families allow an investor to open up a new account in a closed fund if they do it by moving shares rather than funding it with dollars. Here, that new account is in a Roth, but it could have been, e.g. a T-IRA funded with 401(k) rollover shares.

One fund company that is a stickler about not opening new accounts in closed funds is Vanguard. Years ago I tried to do a partial Roth conversion of a closed fund. Fortunately, I had already opened a position in the Roth prior to the fund closing. So after only an hour on the phone with them (at least it seemed that long), Vanguard agreed that because I was not opening a new account I could move the shares.

But if I didn't already have that Roth account open, Vanguard would not have let me move the shares to the Roth. I could not open a new account using shares.

Vanguard construes its rules very tightly. Most other families are a little more flexible.

Derf

Question, how does one go about paying taxes on the conversion ? Through estimated tax payment ? @msf & @Tarwheel

Tarwheel

@Derf — You can pay estimated taxes with the IRS form, or ask the fund company to deduct taxes from the proceeds. You’re better off paying estimated taxes from taxable savings, however, to maximize the size of the Roth conversion.

Derf

Thanks @Tarwheel , that's what I was thinking. So in my case, take my RMD & have brokerage with hold taxes, then do conversion, but stay below next tax rate & pay taxes from taxable account.