roth converrsion
my wife is 57 and has a roth and trad ira….she doe not work(no income]…she has 6k in her roth and her 1st contribution was in 2001 which was when she opened it….she has 100k in her trad ira…question#1..can she convert part of this in 2010 and 2011 [pay taxes on it]…question#2 …would there be a penalty because of her age… question#3…when she gets to be 59.5 can she then draw out her contributions and earnings from the roth with no penalty which would be may- 2012 when she would be 59.5.. i have income of 60k yearly if it has any bearing.
Permalink Submitted by Alan Spross on Sun, 2009-12-06 22:45
There is never an early withdrawal penalty for converting to a Roth IRA, but there would be if she removed the Roth conversion amounts from the Roth before she hit 59.5.
Also, at 59.5 in May, 2012 her Roth will become fully qualified meaning that all amounts in the Roth could be distributed tax and penalty free, as she already has met the 5 year holding requirement. That started with her first contribution in 2001.
If you plan to retire in the near future, it might be wise to postpone her conversions until a year neither of you are working, and that should lower the tax bill for the conversion. However, if there is SS income the conversion might cause more of the SS income to be subject to taxes. If you plan to work indefinitely, she might be better off converting a small amount each year and reporting the 2010 amount in 2010 so the 2010 bracket can be used. Tax rates may rise in 2011, more likely for those in the 25% and higher brackets.