Pension deposited to Roth IRA

Submitted by Adrienne Calomino on Tue, 2019-03-12 13:57

I currently have part of my pension going directly into a Roth IRA. This year I am working but I am putting my income into a 403B to reduce my current tax obligation. My tax software says I will owe a penalty on my IRA contribution because I have no taxable compensation. But I thought this should be considered a roll over to Roth.



Submitted by Alan - IRA critic on Tue, 2019-03-12 15:49

  • This is probably being done as a regular Roth contribution, not as a direct rollover. Pensions paid out in annuity format are not eligible for rollover. You can check prior 5498 forms issued annually by your Roth custodian in May for the prior year to see if they are reported a regular Roth contribution or a rollover contribution. You can also check your Roth IRA statements to see if the type of contribution shows.
  • You do need taxable compensation (not a pension distribution) to support a regular IRA contribution. Apparently you did not have taxable compensation in 2018, but will have this year.
  • If you have an excess Roth contribution for 2018, you would correct it instead of paying the 6% excise tax. If you request the return of your contribution with allocated earnings, the earnings will be taxable for 2018, so you should delay your 2018 return until you know what the earnings amount is and can include it on your return. A penalty on the earnings is also due if you are under 59.5. If you have a large gain on your excess contribution, perhaps 20% or more you could also pay the excise tax and then apply the excess to 2019. You probably do not have a large enough gain to consider this option.

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