Permalink Submitted by Thomas Hurford on Mon, 2013-07-15 18:17
Imagine the following scenario:If a person is over 59.5, they convert their IRA in 2010 (hypothetically 750k) and take money out this year, for example 100k from a current account value of 900k…Assuming this is the only transaction (one incoming conversion and no contributions). This did not satisfy a five year rule, but is there any tax implication? Between the age of the client, and the ordering rules etc. What would happen here?
Permalink Submitted by Alan - IRA critic on Mon, 2013-07-15 18:22
The distribution would be tax and penalty free (up to 750k). Distributions in excess of 750k would be taxable (non qualified earnings), but no penalty. There is no early distribution penalty for distribution of the converted amount because IRA owner is over 59.5.
Permalink Submitted by Thomas Hurford on Mon, 2013-07-15 20:25
Thanks, I thought that, but got different information from a few people….and suddenly freaked out, thinking that I had given erroneous information to a client, putting them in an adverse circumstance.
Permalink Submitted by Joseph Cosden on Wed, 2013-07-17 14:53
Just to be sure that I fully understand the tax situation on a converted IRA, I ask the following. Investor is over 59.5 years of age when she does a SEP IRA to Roth IRA conversion. She does not add any non- converted money into this Roth. She has never had a Roth IRA previous to this. Will she be allowed to take distributions from this Roth IRA without paying taxes or is there a five year rule that applies to this situation.
Permalink Submitted by Alan - IRA critic on Wed, 2013-07-17 19:38
Taxpayer can take tax and penalty free distributions up to the amount of the conversion at anytime. But the 5 year holding period must be completed before the taxpayer can withdraw any earnings on the converted amount without owing taxes on the earnings. Prior to completion of the 5 year holding period, withdrawals are deemed to come first from the conversion and any earnings would come out last. The 5 year holding period begins 1/1 of the year the Roth is first funded, in this case with conversion money.
Permalink Submitted by AdvantaIRA Team on Fri, 2013-07-12 19:01
Yes there is! It refers to if you are married filing jointly and your Adjusted gross income. Follow us on Twitter! https://twitter.com/AdvantaIRATrust
Permalink Submitted by Thomas Hurford on Mon, 2013-07-15 18:17
Imagine the following scenario:If a person is over 59.5, they convert their IRA in 2010 (hypothetically 750k) and take money out this year, for example 100k from a current account value of 900k…Assuming this is the only transaction (one incoming conversion and no contributions). This did not satisfy a five year rule, but is there any tax implication? Between the age of the client, and the ordering rules etc. What would happen here?
Permalink Submitted by Alan - IRA critic on Mon, 2013-07-15 18:22
The distribution would be tax and penalty free (up to 750k). Distributions in excess of 750k would be taxable (non qualified earnings), but no penalty. There is no early distribution penalty for distribution of the converted amount because IRA owner is over 59.5.
Permalink Submitted by Thomas Hurford on Mon, 2013-07-15 20:25
Thanks, I thought that, but got different information from a few people….and suddenly freaked out, thinking that I had given erroneous information to a client, putting them in an adverse circumstance.
Permalink Submitted by Joseph Cosden on Wed, 2013-07-17 14:53
Just to be sure that I fully understand the tax situation on a converted IRA, I ask the following. Investor is over 59.5 years of age when she does a SEP IRA to Roth IRA conversion. She does not add any non- converted money into this Roth. She has never had a Roth IRA previous to this. Will she be allowed to take distributions from this Roth IRA without paying taxes or is there a five year rule that applies to this situation.
Permalink Submitted by Alan - IRA critic on Wed, 2013-07-17 19:38
Taxpayer can take tax and penalty free distributions up to the amount of the conversion at anytime. But the 5 year holding period must be completed before the taxpayer can withdraw any earnings on the converted amount without owing taxes on the earnings. Prior to completion of the 5 year holding period, withdrawals are deemed to come first from the conversion and any earnings would come out last. The 5 year holding period begins 1/1 of the year the Roth is first funded, in this case with conversion money.