Roth Conversion for 70 year old
I have a client who is 70 and does not want to take RMD’s and convert his IRA to a Roth. He does his own taxes and currently does not pay income taxes when he files. His IRA is 26,000 and could probably take his IRA out without having to pay much in tax if any at all. Does it make sense to convert him to a Roth? I am thinking not. Also I am thinking not because of the rule of having a Roth in-force for 5 years before taking money out. Can someone please clarify? Much appreciated.
Permalink Submitted by tomd37 on Fri, 2013-10-25 16:08
Depending on his marital status, social security benefit(s) for himself and possible spouse, other incomes, etc., he may owe income tax. The converted amount becomes taxable income to him as does any other taxable income he might have. It also could make some Social Security benefits taxable. Depending on his individual circumstances he may want to convert some of his IRA this year and the remainder next year to minimize his taxes. I am not positive, but based on his age I don’t think he has to hold the new Roth for five years before taking money out. I also believe he could at least take out his contribution amount without any taxation, but I do believe the five year rule does not apply to him based on his age. I am sure Alan S will reply and set me straight. I still like the idea on converting at his age as any growth after conversion will not be taxed (under current law). Hopefully he has many years of life and growth ahead of him. Tom D.
Permalink Submitted by Curtis Sanders on Fri, 2013-10-25 21:16
Thank you Tom D. I appreciate you taking the time to comment. Very helpful.
Permalink Submitted by Alan - IRA critic on Fri, 2013-10-25 18:37
Yes, he can forget about the 5 year holding period for conversions since that ended at age 59.5. He will still need 5 years before any earnings on his Roth become tax free and that starts with the year of this first Roth IRA of any type. The key age here is whether he will reach 70.5 before the end of this year. If he will, he must first take out his 2013 RMD before converting any additional amounts. He cannot convert his RMD. While converting in a way that he will pay no taxes on the conversion is a slam dunk decision, if the conversion generates taxable income including SS benefits, it may not benefit him to convert.
Permalink Submitted by Curtis Sanders on Fri, 2013-10-25 21:14
Thank you for your response. Very helpful. Client won’t be 70.5 until next year.
Permalink Submitted by Jose Arias on Tue, 2013-10-29 00:54
Can I convert my 401 K to my Roth IRA while I’m still active (working?)
Permalink Submitted by Alan - IRA critic on Tue, 2013-10-29 01:52
Yes, if you are eligible for distributions from the plan while still working. Generally, you can take distributions at age 59.5, and sometimes distributions of earnings and co match before that date. Also, if you have after tax contributions in the plan, the sub account that holds them is often eligible for distribution prior to 59.5. You will have to check with your plan administrator.