roth ira and roth conversion

Submitted by gerard noronha on Wed, 2018-06-06 11:12

this question is for Alan
just want peace of mind and clear a few doubts

1)joined roth Ira in 1998…added over the working years till 2009…all qualified and can be taken out if needed..is that correct?? I am 71…I think the first Roth Ira has to be qualified…5 yr time frame
2)started trad ira to roth conversions in 2010…if I converted 20K , did not pay the 15% (roughly) tax upfront but sent an estimated tax payment of 3K to the IRS…so that reflected in my tax return for the year…I think it is OK with the IRS…correct???
3)if needed can I take out monies from the roth conversions…is there a waiting period?? confused about the 5 yr rule…if I do have to wait 5 yrs on each conversion , does a 2014 conversion qualify at the end of 2018?
thanks Alan in advance for the awaited reply….gerry



Submitted by Alan - IRA critic on Wed, 2018-06-06 18:11

  1. Yes, your Roth became fully qualified about 10 years ago. All distributions are tax free and there are no RMDs due.
  2. You can pay conversion taxes by either withholding from any source or by paying quarterly estimates. However, if you convert late in the year and pay a higher estimate for just the 4th quarter, you still might incur an underpayment penalty for the earlier quarters unless you use the annualized income installment method, and that form is long and difficult to complete. 
  3. Your Roth is fully qualified so there are no 5 year holding periods of any type remaining. You could convert and take a distribution the next day and there would be no tax or penalty on the distribution. However, now that you are subject to RMDs, be aware that you must complete your entire RMD before converting additional amounts. The RMD cannot be rolled over and a conversion is a rollover. So complete the RMD first, then convert additional amounts if you wish, knowing that you will be taxed on both the RMD and the conversion.
  4. Since you are taking RMDs now, you might consider using withholding from the RMD distribution instead of paying quarterly estimates, since withholding avoids the problem mentioned above. Of course, your RMD must be large enough for the withholding to be enough to cover your entire tax liability for everything including any pension, SS income or other income.

Submitted by gerard noronha on Wed, 2018-06-06 18:51

thank you Alan…that clarifies everything…I thought so but had to make sure…Alan you are the best and 1000’s must thank U for your advice!!!

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