72t SEPP roll to Roth?
Can a 72t substantially-equal-periodic-payment distribution be rolled into a Roth IRA without blowing the 10% penalty exemption?
Can a 72t substantially-equal-periodic-payment distribution be rolled into a Roth IRA without blowing the 10% penalty exemption?
Permalink Submitted by Alan - IRA critic on Fri, 2014-01-10 19:54
Yes, this is clearly authorized in IRS Reg 1.408A-4, Q 12. The example given is a full conversion. But your tax hit for a full conversion would be excessive. There have also been a couple cases where the IRS busted a plan for doing a partial transfer, which you would probably rather do to control the taxes. So your risks of doing a partial conversion is that you have added complexity to your 72t plan which may well invite IRS scrutiny and it could bring the partial transfer problem into play. So if you want to convert the entire TIRA to a Roth and then continue the 72t distributions from the Roth (no penalty due to the SEPP exception that nullifies the 5 year conversion holding period), you would be OK except that your entire TIRA would be taxed at one time. Doing a partial conversion poses some additional risks and not enough people have done it to be comfortable with trying to assess the degree of risk.