Bypass the SEPP

You are here:
< Back

L1: Bypass the SEPP
If I transfer $25,000.00 from a “Traditional IRA” to a “Roth IRA” in 2018, how much of the
$25,000.00 may I removefrom the Roth IRA in 2018, tax-free and penalty free?
2018-07-25 19:33, By: 72TIRED, IP: [2600:1700:de20:6240:d996:8b0c:16ad:7308]

L2: Bypass the SEPP
Remember, if you move $25,000 from a traditional IRA to a Roth IRA, you have to pay income tax on the amount of the transfer. And, there is the 5 year rule regarding amounts paid into a Roth IRA.
“In order to withdraw your earnings from a Roth IRA tax and penalty free, not only must you be over 59_ years-old, but your initial contributions must also have been made to your Roth IRA five years before the date when you start withdrawing funds”…Roth IRA
Someone will probably have more clarification for you, but I don’t think that what you are trying to accomplish will work.
2018-07-25 19:51, By: Gfw, IP: []

L2: Bypass the SEPP
You should be discussing this with a tax professional.
1. The transfer from the Traditional IRA to the ROTH IRA will be taxable on your 2018 tax return.
2. Once the $ 25,000 is in your ROTH IRA, you can take any amount up to $ 25,000 cumulatively in 2018 or over several years. Distributions from ROTH IRA accounts are tax-free up to the amount of the CONTRIBUTIONS or CONVERSIONS because in both cases taxes were paid on the amounts when they went into the ROTH IRA.
3. Distributions from ROTH IRAs above the amounts contributed are slightly different. Distributions of “earnings” (i.e. income and appreciation) are subject to tax. Distributions from ROTH IRAs from Contributions can be made after 5 years from the date of the FIRST CONTRIBUTION, while those from CONVERSIONS must wait until 5 years after EACH CONVERSION, or they will be subject to the 10% early distribution penalty. You must keep separate track of Contributions vs Conversions, and it is usually best to keep them in separate acounts, and not co-mingle them.
2018-07-25 20:07, By: dlzallestaxes, IP: []

L3: Bypass the SEPP
Dear dlzallestaxes,
Earlier, you stated:
You can withdraw CONTRIBUTIONS to a ROTH IRA at any age without any tax or 10% penalty. There is a “hierarchy” of distributions from ROTH IRA accounts. CONTRIBUTIONS are withdrawn first, then CONVERSIONS, and then lastly EARNINGS (i.e. accumulated income and appreciation).
You can withdraw CONTRIBUTIONS to a ROTH IRA at any age without any tax or 10% penalty, because the monies used for these contributions were originally taxed, and there was no tax deduction when the contributions were made.
You can withdraw CONVERSIONS OR ROLLOVERS to a ROTH IRA next at any age without any tax or 10% penalty, for the same reason as for Contributions above.
After CONTRIBUTIONS and CONVERSIONS/ROLLOVERS are withdrawn tax-free from a ROTH IRA, then, and only then, are the remaining funds subject to tax and the 10% penalty for early withdrawal if made before age 59 1/2.
…………… now, which answer is correct?
2018-07-25 20:34, By: 72TIRED, IP: [2600:1700:de20:6240:d996:8b0c:16ad:7308]

L4: Bypass the SEPP
They are all saying the same thing, if you follow the wordings. If someone merges ROTH CONTRIBUTIONS AND ROTH CONVERSIONS, lots of luck determining the “earnings and appreciation” on each component on a prorata basis, especially when they occurred at different dates. The only thing that is subject to tax and/or penalty is “distributions of earnings and appreciation”.
The easiest way to understand this is the following example :
$ 25,000 ROTH IRA CONTRIBUTION in 2018 but $ 100 was initially contributed in 1990.
$ 10,000 ROTH IRA CONVERSION in 2010, 2015, and 2017.
The first $ 25,100 withdrawn is not subject to tax or penalty because taxes were paid on it initially when it was contributed.
The next $ 10,000 withdrawn is not subject to tax or penalty because it is the distribution of a CONVERSION on which taxes were paid.
The next $ 20,000 withdrawn is not subject to tax or penalty because it is the distribution of CONVERSIONS on which taxes were paid.
After withdrawing $ 55,000, the earnings/appreciation allocated to the $25,100 of CONTRIBUTIONS are not subject to tax or penalty if the taxpayer is 59 1/2 or older.
Earnings/appreciation allocated to the $ 10,000 CONVERSION from 2015 and 2017 are not subject to tax, but are subject to the 10% penalty if withdrawn before 5 years or age 59 1/2.
2018-07-25 21:14, By: dlzallestaxes, IP: []

L5: Bypass the SEPP
Dear dlzallestaxes,
The easiest way to help me is to follow my example.
I convert $25,000.00 to a “Roth IRA” in 2018.
I have no “contributions” at all.
I take out the $25,000.00 in 2018.
I have no “earnings”.
Next year, I do the same thing.
From what you have written up above…….I can do this.
I can not find a Roth IRA site that agrees with you.
I want you to be right.
What am I missing…….or what are you missing?
2018-07-26 01:23, By: 72TIRED, IP: [2600:1700:de20:6240:d996:8b0c:16ad:7308]

L6: Bypass the SEPP
If you are in the 22% tax bracket, you will have to pay $ 5,500 to the IRS every year, and have only $ 19,500 available to spend.
This will “bypass” the SEPP 72-T, and the 5-year/age 59 1/2 rules.
BUT, how much is in your IRA to start with ? If you are going to do this for 10 years, you need $ 150,000+ in your IRA to start with, assuming the earnings and appreciation accumulate the money for the final 2 years.
2018-07-26 02:16, By: dlzallestaxes, IP: []

L7: Bypass the SEPP
Dear dlzallestaxes,
If I am in the 12% tax bracket, I will have to pay $3,000.00 to the IRS every year,
and have $22,000.00 available to spend.
It does not matter how much I have in my Traditional IRA.
I can do it as many times as wanted.
I can change the amount converted, as long as I pay the taxes.
The question is ……can I truly do this?
What can you tell me, that will convince me, ……that you are correct?
2018-07-26 02:53, By: 72TIRED, IP: [2600:1700:de20:6240:d996:8b0c:16ad:7308]

L8: Bypass the SEPP
My point was that you could not do it by recyling the same $ 25,000. You have to have enough to do it the number of times that you are planning to do it. If you do not have any other taxable income, then why not do twice as much if you are single, or 4 times as much if you file a joint return ?
The 12% tax bracket is up to $ 38,700 of taxable income (single), which is $ 49,700 gross income (single) minus the new $ 12,000 standard deduction. On joint returns it is up to $ 77,400 taxable, which is $ 101,400 gross minus $ 24,000 standard deduction.
You can read IRS Pub 590-B (Distributions from IRAs), and IRC Section 408A (ROTH IRAs). You can google many articles about ROTH CONVERSIONS. You can hire a tax professional.
2018-07-26 04:38, By: dlzallestaxes, IP: []

L9: Bypass the SEPP
Dear dlzallestaxes,
I agree that the 12% tax bracket top end is $38,700.00, but if you add the
$12,000.00 standard deduction, you have a potential gross of $50,700.00.
My choice of tax bracket is mine to choose, as is how much I choose to remove
from my Traditional IRA.
I shall read the IRS publications you have offered, and I may have a question.
Thank you for your expertise and your response.
2018-07-26 14:53, By: 72TIRED, IP: [2600:1700:de20:6240:1854:ab7e:e773:801a]