Roth Conversion
57 yr old client has existing RIRA that is approx. 8 yrs old. He also has TIRA, and is considering converting TIRA to RIRA while markets are down. would there be any disadvantage to him simply converting and combing with existing RIRA or should he keep converted funds separate?
Permalink Submitted by Alan - IRA critic on Tue, 2022-06-28 18:01
No reason not to convert into existing Roth, but he must keep track of the conversion amounts as part of his Roth basis if there is any chance he would have to tap the conversion money prior to 59.5.
Permalink Submitted by Ram Iyer on Sun, 2022-07-03 22:30
Hello:I am 66. If I rollover my 401K into a traditional IRA and then convert it to ROTH IRA the very next day, can I withdraw the amount tax free a day after? My assumption is, it has not gained anything in a day, and the five year waiting rule does not apply. Yes, I have a ROTH account at the financial company where I will be doing this and it has been there for well over 5 years. Am I following the rules? Yes, I know, all these activities will take more than 3 days but this is a hypothetical question.Thanks
Permalink Submitted by William Tuttle on Mon, 2022-07-04 01:14
Permalink Submitted by Marcy Graham on Wed, 2022-07-06 23:56
I am 64 years old and have a deferred fixed indexed annuity that was funded with IRA money. I plan on doing a Roth conversion of the annuity in 2022 (and paying the taxes on the Roth conversion, of course.). After the annuity has been converted to Roth, I plan on initiating the income rider in order to have tax-free income. in addition to the annuity, I also have another separate Roth account that is over 5 years old. Questions: 1. Will I have to pay a penalty on the income rider amount, since the Roth annuity will be less than 5 years old? 2. Will I have to pay taxes on the earnings portion of the income rider amount for the next 5 years, since the Roth annuity will be less than 5 years old when the income rider is initiated? ———— Thanks for the answer below! According to your answer, since I have a separate Roth account that is over 5 yrs old in addition to my annuity, all Roth IRAs belonging to the same individual are counted for determining the five-year period. (So if someone opened a Roth IRA at one brokerage in 2019, for example, and then opened a second Roth IRA at a different brokerage the following year, the five-year period begins in 2019.) According to your answer, does that mean in order to avoid a penalty and taxes on the annuity income rider, I first have to make withdrawals of the contribution amount from my other Roth account?
Permalink Submitted by Alan - IRA critic on Thu, 2022-07-07 00:11
Assuming this will be your only Roth IRA, all amounts you receive from the Roth will be subject to the 10% penalty for the first 5 years counting the conversion year unless you reach 59.5 first. If you have other Roth IRAs, then your distributions will be penalty free until all your regular Roth contributions and conversions older than 5 years have been distributed. Taxation of all Roth distributions treats all your Roth IRAs as a single account, and distributions are taxed under the Roth IRA ordering rules.
Permalink Submitted by J SMITH on Wed, 2023-05-24 12:44
Thank you for reviewing my comment. Great forum.Per the subject, these are the key documents each year. If challnged by the IRS by say, mail audit (CP xx), is this all the documents they have to work with typically? SS Pittsburgh
Permalink Submitted by David Mertz on Wed, 2023-05-24 19:30
The Roth IRA custodians provide the IRS with copies of the same Forms 5498 and 1099-R showing your Roth IRA contributions, conversions and distributions that they provide to you, so the IRS has all of the information necessary to determine amounts subject to tax and penalty. Still, the IRS relies on you to file an accurate tax return, including Form 8606 when required. If the IRS has any question, they typically require you to produce any past forms needed rather than do any research themselves.