2010 roth converion using SEPP of 2010

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L1: 2010 roth converion using SEPP of 2010Can anyone tell if using the SEPP disribtution from a rollover IRA would somehow be improperusing the 2010 Roth Conversion amnesty(you can covert unlimited traditional IRA moneys to ROTH in 2010 with taxes due.) Since my wife and I both have our entire IRAs pledged as SEPP for the next few years we cant take full advantage of this legislation. Also would the extra year of tax payment grace period be applicable using this senario? Thanks for any light you can shed to this strategy…lowering taxable income in the future is surely one of the most imprtant retirement issues facing individual taxpayer planning. ‘thanks for all input.2009-10-18 15:52, By: stump, IP: []
L2: 2010 roth converion using SEPP of 2010I assume that you meant CONVERT, not COVERT, or was that Sunday humor ?Anyway, I think that you are “stuck” with whatever IRA assets that have been already committed to your SEPP 72-T plan not being available for the 2010 ROTH CONVERSIONS.You would have to give us more info as to your respective DOB/ages, date of first distributions, amounts distributed to date, and original and current balances. If you started in the past year or 2, then the 10% penalty for busting the plans might not be too bad in the total picture.HOWEVER, it is rarely advantageous to do ROTH CONVERSIONS if you do not have assets outside of retirement plans that are available to pay the taxes on those conversions. And if you have set up SEPP 72-T plans for both of you, I would have to assume that you do not have these other funds, otherwise you wouldn’t have needed SEPP 72-T plans in the first place.2009-10-18 17:29, By: dlzallestaxes, IP: []

L3: 2010 roth converion using SEPP of 2010I agree that more information is needed, but the final paragraph on Dlz’s post is particularly true regarding the source of funds to pay the taxes. Because of the two year tax deferral for 2010 conversions, the timing issues appear to come togetherbetter for SEPP plans that end in 2010 or 2011.There is no problem with converting a TIRA during aSEPP plan, as long as the amount distributed that is NOT converted remains the same amount as the plan requires. Essentially, the conversion takes some of the rest of the account, creates a new Roth IRA that is part of the SEPP universe, and incurs the extra tax bill that must be paid in addition to the usual expenses of the taxpayer. Very few SEPP participants have this extra cash available. If they got a new job and don’t need the funds distributed per the SEPP plan, the conversion still probably does not make sense because the combined SEPP distribution, conversion tax bill, and the additional earned income will increase the marginal rate to a point where the conversion may make no sense. A non taxable inheritance would be a better scenario, providing the funds to pay the conversion taxes without the added taxable income of a job.The continued validity of the SEPP plan is based on the distribution amount being accurate and these SEPP distributionscannot be rolled over or converted. A SEPP plan is not affected by WHEN when the tax bill is due, so 2010 conversions can work just like any other conversion except that the tax bill is deferred into the extra years unless the taxpayer opts out of the deferral.This takes an extra measure of planning IF the facts come together that a conversion of the SEPP TIRA (or only part of it in most cases) makes sense. It adds a bunch of new moving parts that must all be reported on the tax return that the IRS will be looking at, extra 1099R forms, an 8606,etc. A recharacterization, in the event you change your mind or the converted assets take a market hit, adds even further moving parts that must be reported, including an explantory statement added to the tax return. It also provides an escape route in the event the funds to pay the taxes are not there, although the recharacterization date for a 2010 conversion (10/17/2011) does not provide the amount of hind sight as in prior years, since the tax picture is not completely known for 2011 and certainly not for 2012. You also have the option to opt out of the deferral and report the entire 2010 conversion in 2010 income if there is some reason to do that. That opt out deadline is also 10/17/2011. In summary, this will only work for a very narrow group of SEPP participants, and very careful analysis is required. But if you mess up, recharacterization can erase the conversion and put you back where you were before except for the explanatory statement for the IRS.The issue of partial transfers is also raised by a partial conversion, although I think that the risk emanating from those two letter rulings is negligible.2009-10-18 19:39, By: Alan S., IP: []