If you are under age 59 ½ and you converted your traditional IRA to a Roth IRA, you will need to watch out for the five-year rule for penalty-free distributions of converted funds. Not understanding how the rule works can result in unexpected penalties when you withdraw your Roth IRA funds.
Question:I'm retired, over age 59 ½, and want to take a single 401(k) distribution and convert it to my Roth IRA. Do I follow same 60-day rollover rules and first have to rollover the distribution to a Traditional IRA and then convert it, or can I deposit it directly into my Roth IRA?
We continue to get questions about whether it’s wise to do a Backdoor Roth IRA or Mega Backdoor Roth IRA at this point, given the unsettled state of the Build Back Better (BBB) legislation in Congress.As background, the Backdoor Roth IRA strategy allows you to make an indirect Roth IRA contribution if your income is too high to qualify for a direct contribution. (The income phase-out ranges for 2022 are $204,000 - $214,000 for married couples filing jointly and $129,000 - $144,000 for single filers). You simply make a traditional IRA contribution and then convert it to a Roth IRA. (No income limits apply for making traditional IRA contributions, but you must have taxable compensation or earned income.)
The “Martin Scenario”: Martin, age 40, has never done an IRA rollover before. He took a distribution from his traditional IRA in December 2021 for $10,000 and deposited it into his checking account. Martin took another distribution from his IRA in January 2022 for $50,000. He also deposited this into the same checking account.
Question:My question relates to an IRA withdrawal that is then deposited as a Roth conversion. Will this withdrawal count as a once-per-year IRA rollover?Thanks in advance for your wonderful advice.
The rollover rules can be especially challenging at the end of the calendar year. If you took a distribution from your IRA at end of 2021 and are considering a rollover in 2022, here is what you need to know.
72(t) payments have suddenly become a better deal for IRA owners and company plan participants.Also known as “substantially equal periodic payments,” 72(t) payments are advantageous because they are exempt from the 10% early distribution penalty that usually applies to withdrawals before age 59 ½. You can take them from an IRA at any time, but only from a workplace plan after leaving your job.
Question:Hello. Thanks in advance for fielding my question.My mother died in 2021 in her 90's. She was using $100,000 of her traditional IRA RMD as a QCD. In order to fulfill her 2021 charitable commitments, I did a QCD after her death.Because I am not 70 ½ yet, my CPA tells me I need to include the IRA withdrawal in my income and take a charitable deduction because the assets had already moved to my inherited IRA account.Is this correct? Is there an exception I am missing here?Thanks!
A person is allowed only one IRA-to-IRA or Roth-IRA-to-Roth-IRA 60-day rollover per year. This 12-month period is a full 12 months – it is not a calendar year. Accordingly, we refer to this as the “once-per-year rule.” For example, if a person received an IRA distribution in March that is subsequently rolled over, he is not eligible to initiate another 60-day IRA or Roth IRA rollover with a distribution received before the following March. The 12 months begin with the date the funds are received by the account owner. (Day of receipt is an important distinction. This could buy a person a couple of days when the 60-day deadline is approaching and a check was originally mailed to the IRA owner.)
Did you take your RMD from your IRA for 2021? Hopefully, the answer is yes because for most IRA owners and beneficiaries the deadline for taking a 2021 RMD was December 31, 2021. There is an exception. If you reached age 72 in 2021, you still have time. Your deadline for taking your 2021 RMD from your IRA is April 1, 2022.
