Roth IRA conversions

Under the rule of AGI must be less than $100,000 in 2007 and 2008, does the person doing the rollover from IRA to Roth IRA have to have earned income or can their income be from pensions and social security. If the IRA holder does not have earned income in that year of the conversion, can the spouse have earned income.

Thanks for your reply.

Deborah



There is no earned income requirement to process a Roth conversion. The only requirements are that your joint modified AGI does not exceed 100,000. Also, you cannot be married and filing separately. The conversion itself is not included in modified AGI.

The earned income requirement only applies to regular Roth contributions, not conversion contributions.



Also note that if you are subject to RMD’s from your IRA, the RMD must be withdrawn prior to converting any amounts to a Roth.



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This raises a question for me. If you want to do a conversion in January, can you not take the RMD in December…?

Or can you do the conversion in January and just make sure you have enough money left in the IRA to do the RMD in December based on the January account value prior to the conversion….?



The RMD must be taken prior to the conversion. The reason for that is the first distribution is automatically deemed to satisfy the RMD requirement. A conversion is considered a distribution and rollover.

If the conversion is done first, it means that the RMD is satisfied, however it also results in the RMD being rolled over to the Roth. An RMD is NOT an eligible rollover distribution and therefore becomes an excess contribution to the Roth IRA requiring correction.

It does not matter which time of year either of these are done as long as the RMD is taken first. Since it is often good to do a conversion early in the year, that means the RMD must also be early.



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