85-year-old considering 2010 Roth conversion
My vigorous, elderly father usually does not spend his TIRA RMDs. He has never tapped his 1998 conversion Roth IRA, deeming it to be the best possible bequest for his beneficiaries. He’s now considering a 2010 conversion RIRA.
Should a new conversion RIRA be set up separately from the earlier conversion RIRA–given that the newly converted sums are subject to a separate five-year holding rule?
If a Roth converter dies early within the five-year holding period, I assume that a non-spousal beneficiary receiving distributions on the account would not be in breach of the five-year holding period as long as he or she selects a distribution period of at least five years. Correct?
If a 2010 Roth converter dies in 2010 or 2011 before filing a 2010 return that elects delayed-and-divided taxation in 2011 and 2012, would his estate owe all taxes on the conversion on the 2010 return? If he should die in 2011 after electing the delayed-and-divided taxation, could his estate choose to either pay all taxes in 2011 or to divide them between 2011 and 2012?
Other considerations for a Roth converter of ripe age?
Thanks in advance to you benevolent, compassionate experts for sharing your very, very hard-earned acumen!
Permalink Submitted by mk foss on Tue, 2010-01-12 04:05
You need not worry about 5-year rules. Since the 1998 Roth is still there, it started the only 5-year rule that someone over 59.5 has to worry about.
If he were to convert and pass away in 2010 before the tax is paid, his executor could decide to “undo” the conversion in part or in full to avoid the tax.
The new conversion would generally go into a new Roth account for ease of recharacterization. Calculating earnings to add to the converted amount is complicated; just dealing with the current year conversion simplifies matters. If he is converting a number of types of investments, it makes recharacterization easier if they are in different accounts. For example, if bond funds are converted to a new Roth in 2010 and equity funds are converted to another – if bonds go down, that account can be recharacterized so income tax is not owed on the conversion value. Once the recharacterization deadline is passed, all the Roths can be combined with the 1998 funds.
Permalink Submitted by Alan Spross on Tue, 2010-01-12 04:58
And if the executor decided not to recharacterize the entire conversion, any taxes due cannot be deferred beyond the final income tax return unless there is a surviving spouse as sole IRA beneficiary.