Can You Really Transfer That Penalty Free? This Week’s Q&A

This week’s Slott Report Mailbag looks into IRA transfers and international transfers. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

Question:

Hello. I am a 55 year old, single, self-employed woman with $4,700 in a traditional IRA that I am not making further installments.  Instead, I am contributing $500/month into my Roth IRA.

My question is, should I make a direct transfer from my traditional IRA to my Roth IRA now, or wait until I am 59 1/2?

I greatly appreciate your tax advice and say hello to Ed for me!

Regards, Eileen.

Answer:

There is no need to wait until 59 ½ to convert your IRA funds to a Roth IRA. While you will owe income tax on all pre-tax amounts in your IRA, you will not owe the 10% early distribution penalty. A Roth conversion is an exception to the penalty. The things you will need to consider are where the funds will come from to pay the tax on your conversion and the impact of adding an additional $4,700 to your income.

Question:

Hi. Can you please offer some help? I have been living in Ireland for the last 15 years but still have an IRA fund in America (I am an American citizen). Can you tell me how to get this IRA flipped into my pension fund here in Ireland? I have no idea what needs to be done with this fund.

Thanks, Carol.

Answer:

Your IRA cannot be transferred tax-free to any pension fund of a foreign country. The U.S. tax code only allows tax-free transfers between U.S. retirement funds that are allowed under the tax code. You have the option of maintaining the IRA as it is and taking required distributions at age 70 ½ or of cashing it out, paying any income taxes owed, and moving it to an account in Ireland. Any contributions to an Irish pension fund would have to follow the applicable rules in Ireland.