IRA to Roth Conversion in 2010
I have a client with MAGI >$100k who I would like to recommend converting a portion of her Traditional IRA into a Roth IRA in 2010. Currently, she has $2M in a taxable brokerage account and $3M in a Traditional IRA. I would like to recommend she convert half of her Traditional IRA into a Roth. She is over 59.5 and younger than 70.5. My questions are:
1) After the conversion can my client pull money out of the Roth IRA within the first 5-years without incurring a penalty?
2) Would the Roth and Traditional IRA ever be aggregated for withdrawal purposes? ie: she will be required to take money out of the Traditional IRA if she takes money out of the Roth or visa versa.
thank you
Permalink Submitted by Alan Spross on Thu, 2008-04-24 19:03
1) Yes, the 5 year holding period for early withdrawal of conversions stops at age 59.5. Withdrawal of the conversion dollars would be tax and penalty free. However, if she converts in 2010 and defers taxes to 2011 and 2012, withdrawals could accelerate the income tax due date on the conversion.
2) No, they are totally separate. RMDs only apply to the traditional IRA, not to the Roth IRA. If withdrawals are taken from the Roth for other reasons, it will have no affect on the traditional IRA RMDs. Obviously, conversions to a Roth will reduce the amount of assets in the traditional IRA and therefore reduce RMDs.