401K to Roth From Spouse
I have a client age 51 whose husband age 55 passed away this year. It would be to her advantage to convert to a Roth, however the question is about income.
There is her income, and then his income to date of death, continuing pension from him, and unused vacation pay. Does she need to include all of this in her taxable income this year, or could part of it be counted just for him, etc., so she will not go over the $100,000 income limit that would prevent the conversion.
Thanks – Mike S.
Permalink Submitted by Alan Spross on Mon, 2008-07-07 22:27
Mike,
While she might file a separate return, the rules state that no conversion is allowed under that filing status. If filing jointly this year, she could convert but is subject to the 100,000 limit and all their income must be reported. One possibility to consider is using a termination date for his estate after 12/31/08 so income paid to the estate is not reported in 2008 .Otherwise, perhaps her income will drop below 100,000 next year, but if not the income limit goes away entirely after 2009.
Typically, converting too much in a single year will inflate the marginal tax rate. Another issue to be addressed is how she can take distributions to live on without incurring early withdrawal penalties before she reaches 59.5, if such distributions will be needed.