ROTH Conversion
I am 59 ½ years old and I opened my first ROTH IRA more than 5 years ago.
I rolled over Traditional IRA “A” into ROTH Conversion IRA “C” in September 2009.
I have another Traditional IRA “B”.
(1) Can I roll Traditional IRA “B” into the same ROTH Conversion IRA “C” in November 2009?
(2) Can I take a distribution from ROTH Conversion IRA “C” at any time, not subject to any 1-year waiting period, 5-year holding period or 10% additional tax?
(3) Can I rollover all or part of ROTH Conversion IRA “C” into a new ROTH IRA “D” at any time, not subject to any 1-year waiting period, 5-year holding period or 10% additional tax?
(4) I understand that there is a 1-year waiting period after rolling over one IRA to another IRA, but can a trustee-to-trustee transfer be made from ROTH IRA “D” to a different ROTH IRA “E” at any time, not subject to any 1-year waiting period, 5-year holding period or 10% additional tax?
Thank you.
Bill Briner
Permalink Submitted by Alan Spross on Mon, 2009-10-12 03:09
Bill,
(1) Can I roll Traditional IRA “B” into the same ROTH Conversion IRA “C” in November 2009?
You can, but the affects of the earnings calculations for any recharacterizations are easier to understand if each conversion goes into a separate Roth account.
(2) Can I take a distribution from ROTH Conversion IRA “C” at any time, not subject to any 1-year waiting period, 5-year holding period or 10% additional tax?
Yes, because all your Roth accounts are now considered fully qualified.
(3) Can I rollover all or part of ROTH Conversion IRA “C” into a new ROTH IRA “D” at any time, not subject to any 1-year waiting period, 5-year holding period or 10% additional tax?
Yes, but as stated above you will have created a difficult earnings calculation if you want to or have to recharacterize any conversions. For 2009, the 100,000 income limit to convert still applies, but if your conversion incurs large losses, you would typically recharacterize it to avoid paying taxes on values that no longer exist.
(4) I understand that there is a 1-year waiting period after rolling over one IRA to another IRA, but can a trustee-to-trustee transfer be made from ROTH IRA “D” to a different ROTH IRA “E” at any time, not subject to any 1-year waiting period, 5-year holding period or 10% additional tax?
I wondered what you meant with the 1 year waiting period. Evidently, you are referring to the one rollover per 12 months per IRA account. But this waiting period DOES NOT apply to Roth conversions (see p 65 of Pub 590), whether you do them indirectly or by trustee transfer. The answer to the rest of this question is Yes. Note that a Roth to Roth rollover IS subject to the one rollover limit, but there is no limit on trustee to trustee transfers. Therefore, you could convert to a Roth and then indirectly roll that Roth over to another Roth, and this rollover is your one allowed rollover. For the next 12 months, you cannot roll that Roth over again, and would have to move it by direct transfer.
Permalink Submitted by Bill Briner on Mon, 2009-10-12 13:54
Thanks Alan, I really appreciate your answers.
One last question. I have a GNMA bond in a Traditional IRA account that is making monthly payments. As I understand it, I can make monthly ROTH Conversions by depositing these payments into a ROTH IRA savings account (paying 2.6% as opposed to the 0.05% in the first institution’s MM account) and then I can take distributions from the ROTH account whenever I need spending money without violating any of the rules.
Thanks again.
Best regards,
Bill Briner
Permalink Submitted by Alan Spross on Mon, 2009-10-12 19:05
That is correct.