Pension rolled over to IRA, what about rolling into Roth IRA
My husband was disabled at age 51 and is now 55. He just rolled over trustee to trustee his employer mutual fund account to an IRA. we are thinking about rolling it into the new Roth IRA and taking the hit on taxes in years 2011 and 2012. Our income will be lower then as I will be reducing my work hours and preparing to retire in 2012, so, my income will decrease over the next 2 years.
Question, since he is 55 and totally disabled, if he were to roll over the IRA to the ROTH, and then decided to take a withdrawal would the 5 year rule apply to him as it does for someone under 59 1/2 and is not Disabled.
In other words does the ‘total disability’ clause come into play here? Since he is 55 and disabled, I know he does not get hit with the ‘early withdrawal’ penalty of 10%, so, does the same apply toward the 5 year rule?
He is thinking of taking a withdrawal from the ROTH this year. OR should he just take it from the IRA and then roll over the remainder of the IRA into the ROTH IRA?
Permalink Submitted by Alan Spross on Wed, 2010-01-06 21:13
Total disability is a penalty exception just like reaching 59.5. Therefore, there would be no 5 year holding requirement for his conversions to become available for withdrawal without penalty immediately after conversion. He would still have the other 5 year holding period for his earnings to become tax free if they were withdrawn. This holding period starts with his first Roth contribution of any type.
However, note that if he converts this year and then withdraws any of that conversion before 2012, the tax bill that was deferred to the later year on the amount of the distribution will become due in the year of distribution.
Example: Converts 100,000 in 2010 and withdraws 30,000 in 2010. The conversion tax bill would be changed from 50,000 in 2011 and 2012 to 30,000 in 2010, 50,000 in 2011 and 20,000 in 2012.
If he takes his TIRA distribution of 30,000 in 2010 and converts 70,000 in 2010, the taxes would then be due on 30,000 in 2010, 35,000 in 2011 and 35,000 2012. As you can see, this defers 15,000 more from 2011 to 2012 than doing the conversion first if he is going to make the 2010 withdrawal. Either way, there is no early withdrawal penalty on any of these distributions due to the disability exception.