ONCE-PER-YEAR ROLLOVER RULE AND ROTH CONVERSIONS: TODAY’S SLOTT REPORT MAILBAG

Thursday, July 15, 2021

Ian Berger, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

Mr. Slott,

Would a person who took a Coronavirus-Related Distribution from his IRA in 2020, with intent to repay within 3 years, be disqualified from taking a distribution and making a 60-day rollover in 2021 if it is within 12 months of the CRD

Thank you,

Betty

Answer:

Hi Betty,

The repayment of a CRD is considered a trustee-totrustee transfer between IRAs. As such, the once-per-year rollover rule does not apply. Therefore, there would be no reason why a 60-day IRA rollover could not be done within 12 months of the CRD.

Question:

Hello Sir/Madam,

We had a question on Roth conversions in our office that is stirring up quite a debate, and we are hoping that you could add your expert opinion,

Bob Smith, Age 65 (in 2021), US Resident, US Citizen & US Tax Filer

  1. Bob has a Traditional IRA worth $100K (with no cost basis).
  2. In January of 2019, he opens up a new Roth IRA and converts the entire $100K amount into this new Roth via a Roth conversion in Jan 2019.
  3. Bob pays the tax due in 2019 for this Roth conversion on his federal tax return.
  4. In January of 2021, Bob takes a withdrawal of $10,000 from this Roth conversion account.  Let’s assume that Bob invested the funds in the money market and this Roth is still worth the original $100K at the time of the withdrawal.

 

Question:  Has Bob violated the 5-year holding period rule that would subject him to the penalty?  Or, is he exempt because he is over age 59 ½?

Thank you in advance for your time and assistance with this.

All my best,

Steve

Answer:

Hi Steve,

Distributions of Roth conversions are never subject to the 10% early distribution penalty if the individual has attained age 59 ½. So, Bob’s distribution would be penalty-free  If he were under 59  ½, the 5-year holding period would apply, and he would have to wait until 2024 to receive a penalty-free distribution.

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