Roth conversion
Mike is 65 and retired last year. he does have a small business that he started in 2019 that will provide about $75k in S-Corp profits. He has $1MM in IRA funds and wants to do some Roth conversions over the next few years. Can he do a Roth Conversion if he does not currently have a Roth? If not, do the S-Corp profits count as earned income for qualification purposes to contribute to a new Roth or must he have w-2 income? Also, if he starts the Roth in 2019 does the 5-yr rule still apply on the funds placed in Roth, either by conversion or contribution?
Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2019-06-05 23:00
A conversion can be done by anyone who has a pre tax retirement account to convert. A current Roth IRA is not required. Conversion money has already been taxed, but conversions must be held 5 years to avoid the 10% penalty if they are withdrawn. The penalty also ceases at 59.5 if earlier. As for regular Roth contributions, modified AGI (not counting conversion income) must fall under certain limits. Note that an S Corp owner is required to receive a reasonable salary reported on a W-2.