converting pension amount to a roth ira
I am retired…presently getting pension….year end about 20K (after taxes)…the 1099-R says I can convert all of it to a Roth Ira..2 questions….IRS website not clear
1) is it true? I have an existing Roth fully qualified…can I add it to this existing Roth
2) if not…and it can be done…do I have to open a new Roth…and wait for 5 years for full qualification.
Plan to use after tax money….Alan can you please respond…thanks in advance…gerry
Permalink Submitted by Alan - IRA critic on Wed, 2017-01-11 16:43
gerry, the 1099R does not provide your options, it only reports the nature of the distribution you received. If this is a typical defined benefit lifetime pension where the annual payments remain the same, you cannot roll over any of the payments to any form of IRA. However, if it is a lump sum distribution or a payment over a period of less than 10 years, you can roll over the distributions in most cases, at least those in excess of any RMD. What is the code in Box 7 of the 1099R? Please advise.
Permalink Submitted by gerard noronha on Wed, 2017-01-11 22:41
thanks for the reply…it is a lifetime pension….code is 7…line B-4 says I can roll the full amount of pension after taxes to a roth ira…I did not beleive it, hence the question…I knew U would know…just feel sorry for people that do it!!! that is why U get so many complicated questions that I check everyday!!
Permalink Submitted by Alan - IRA critic on Wed, 2017-01-11 23:59
In most all situations these pensions are not eligible rollover distributions. However, since this specific plan has info that I do not, I wonder if there is some exception you qualify for. Line B 4 is not part of an IRS Form 1099R, so you might be reading from a specialized version here. Is this distribution paid by a former employer, and if so what type of employer? There was a special law regarding bankrupt airline payments, for example. Anything else you think might be unique to this pension?
Permalink Submitted by gerard noronha on Thu, 2017-01-12 12:11
ALAN thanks for the reply…update1)State of Michigan (Govt) pension….public employee…part of Soc. Security, 401 (k) etc. system. 2) I was doing my taxes using turbotax home and business…the 1099-R format had this info under lie B-4 (section Rollovers, Roth conversions, Roth rollovers and Roth conversions)…1st time ever that I noticed it. I do not want to do anything that complicates the regular Roth Ira…….gerry
Permalink Submitted by Alan - IRA critic on Thu, 2017-01-12 19:50
gerry, being able to roll this over does not seem right and I don’t know of any reason for this indication. Was not able to find an on line Michigan 1099R form to read more about this line B, which is not part of the federal form. Further, if you could roll this over, it would affect your 1040 as well, not just the state return. I suggest you call the state and ask for an explanation about line B 4, if your 1099R is correct, and why they indicate you can roll over the distribution. If you don’t mind, post back what they say. This is obviously a benefit if you can do it, as you could add it to your current qualified Roth IRA. Of course, IF you could roll it over to a Roth, the distribution would still be taxable.
Permalink Submitted by gerard noronha on Thu, 2017-01-12 22:59
state could not help me….this B-4 was on the turbotax program 1099-r…they were not able to help me either…not going to do it ….it will complicate my life…they keep talking about recharacterization…not interested…but thanks for all the help…I feel sorry for people that do not follow this website and U answering questions…when I meet Ed Slott U wiil be paid!!!
Permalink Submitted by David Mertz on Fri, 2017-01-13 01:33
Perhaps this issue is better addressed on the TurboTax user forum. To avoid TurboTax indicating on line B4 of TurboTax’s 1099-R form that this amount is available for rollover, the entire amount needs to be indicated as being RMD. However, if you were still under age 70½ at the end of 2016, it’s a shortcoming of TurboTax that TurboTax’s Step-by-Step mode will not give you the opportunity to designate this amount as ineligible for rollover, even though, as Alan indicated, it is not eligible for rollover. In forms mode you can mark the Entire gross is RMD box on TurboTax’s 1099-R form to indicate that the distribution is not eligible for rollover and TurboTax will remove the amount from line B4.