Convert remaining SEPP payments to Roth?
L1: Convert remaining SEPP payments to Roth?My husband (DOB 8/2/53) started his SEPP in October 2011 and should receive his 60th payment in September of this year, concluding his required SEPP payments.
Since we don’t need the cash just now for those last few payments, can we just redirect them to a Roth IRA, making those funds a conversion?
Something I read in Schwab’s conversion paperwork suggests he can, but I thought I’d run this past the forum and see what I may be missing.
Thanks in advance for any clarification you can provide.
2016-06-28 19:34, By: Kathryn, IP: [220.127.116.11]
L2: Convert remaining SEPP payments to Roth?Interesting question. I contacted Ed Slott, the IRA guru. He responded NO, that ” 72(t) payments cannot be converted to a ROTH IRA. A ROTH CONVERSION is a rollover, and 72(t) payments are not eligible rollover distributions.”
Maybe you can do it after the SEPP ends, if it doesn’t move you into a higher tax bracket.2016-06-28 22:35, By: dlzallestaxes, IP: [18.104.22.168]
L3: Convert remaining SEPP payments to Roth?According to IRS Reg 1.408A-4, Q 12, a TIRA CAN be converted to a new Roth IRA account, and not bust the plan, but this conversion must be addition to the usual 72t distribution. In other words, it will result in the same tax bill as usual plus the tax bill for the conversion. It does NOT re direct the 72t distribution amount to your Roth IRA. Ifthis was done,the SEPP universe will consist of both the TIRA and the new Roth IRA, so after the conversionthere will bea choice for future 72t distributions to come from the TIRA or the Roth IRA depending on how much taxable income you want.
Now in your specific situation where your plan will end in a couple months, it would not make any sense to convert unless there was a benefit of doing so, and then you would wait untilafteryour plan ends. Therefore, the first paragraph is only useful for general information for someone who may have a ways to go before their plan ends. There is no sense in attracting IRS attention in the waning months of a 72t plan when it is not really necessary.
2016-06-29 00:22, By: Alan S, IP: [22.214.171.124]
L3: Convert remaining SEPP payments to Roth?Thanks for the responses.2016-06-29 19:29, By: Kathryn, IP: [126.96.36.199]