72T
I am enrolled in the 72T program until July 15th of 2024 when I will turn 59.5. I did a Roth conversion yesterday with a small portion from the traditional IRA that the 72T distributions are coming from. Not thinking that I maybe should have waited till after mid July. I did my calculations at the end of December for the payments for 2024 for the 72t. Should I try and move them from the Roth IRA back or do you think I will be ok?
Permalink Submitted by Alan - IRA critic on Thu, 2024-01-18 16:07
If your plan ends on 7/15 at 59.5, your first 72t distribution must have been on 7/15/2019 or earlier. It also sounds like you are using the RMD method, which is somewhat rare.
IRS Reg 1.408A-4, QA 12 addresses Roth conversions from an active 72t plan. This regulation clarifies that a Roth conversion is allowed, but it assumes that your entire 72t TIRA account was converted to a Roth IRA and your 72t plan then continues with the Roth IRA, but you are probably OK with a partial conversion as long as it was made to a Roth IRA account with no current balance prior to the conversion. Converting into an existing Roth IRA would bust your plan because your new 72t plan now includes the Roth IRA with a prior balance, which amounts to adding new funds to your 72t account.
To be clear, the conversion itself is not counted as a distribution for 72t account purposes, and if you had completed at least 60 months worth of 72t distributions prior to 2024, you have 3 options for 2024 distributions prior to 7/15. Those 3 are making a full annual distribution, taking no distribution at all (and the conversion does not count), or pro rating by the month which would be 50% of your annual calculation.
So hopefully you converted into a new Roth account or one with a 0 prior balance.
Permalink Submitted by Scott Lojewski on Thu, 2024-01-18 17:26
The Roth did have a prior balance. I just did this in the last couple of days, is there a way I could put the funds back, I have two traditional IRAs and one Roth I merely pulled from the wrong traditional IRA, or should I just let it ride and see what happens.
Permalink Submitted by Alan - IRA critic on Thu, 2024-01-18 17:54
Unfortunately, Roth conversions can no longer be recharacterized, so you cannot reverse the conversion, which will have to be reported on Form 8606 pursuant to the 1099R you will receive. Technically, you owe the 10% penalty on all distributions under the 72t plan back to day 1, including interest. Therefore, your only available choice is whether to self report the busted plan using Form 5329 (no amended returns will be needed) to pay the penalty or to play the IRS lottery and see if they notice this. Taking a distribution from the Roth of the converted amount would not be of any benefit.