Direct Rollover from a QRP to a Roth IRA
From what I understand, I can do a direct rollover from my QRP to a Roth IRA and that if I do this, I will be required to pay income taxes on the amount that is rolled over as regular income for that year. I also understand that I will have to have separate monies in order to pay these taxes.
My employer allows me an option to receive my pension in 60 monthly payments over 5 years. Can I do a direct rollover with the 60 payment method? I figured that by spreading out the payments over a 5 year period, I will be able to cover the income taxes easier than in doing it as one lump sum in one tax year. I wouldn’t think it would matter for taking distributions later as the first payment would be at age 54 and I wouldn’t take anything out until at least 5 years later(when I would be 59 1/2).
Permalink Submitted by Alan Spross on Tue, 2008-12-09 00:16
The 5 year payout would qualify as an eligible rollover distribution, but your employer plan must agree to issue the check properly or handle it directly with the Roth IRA custodian for it to be a direct rollover.
Having it done directly will avoid mandatory withholding, which would incur a 10% early distribution penalty because you separated prior to age 55. If you rolled over the funds yourself (indirect rollover), there would be 20% mandatory withholding and the withheld portion would incur the 10% penalty as well. I understand that you have funds separately available to pay the taxes on the conversion.
Also, note that the 100,000 modified AGI limit applies for years prior to 2010.
Check with the employer to see if they will handle this as 5 annual direct rollovers after you fill out the paperwork.