IRA to Roth Conversion after starting SEPP
L1: IRA to Roth Conversion after starting SEPPDoes someone know what the rules are if an IRA is converted to a Roth aftera SEPP has been initiated? I realize that taxes would be due on the rollover, but is there a way to avoid penalties for breaking the SEPP?
Thanks, Alan2009-09-04 18:30, By: Alan Scott, IP: [126.96.36.199]
L2: IRA to Roth Conversion after starting SEPPPlease give more info.
Date SEPP started
Date of Birth
Distributions to Date
Amount in SEPP account
Reason for wanting to convert to a ROTH
I don’t know if there are regulations about converting a SEPP IRA to a ROTH IRA. But if you can avoid raising any issue with the IRS, by another approach, then that’s what I would do. However, usually distributions are not taken early from ROTH IRAs because the reason for them is to pay the taxes up front, and then let it accumulate tax-free.
If you are planning now for 2010, there are numerous nuances to consider, which is beyond the scope of this forum.2009-09-04 20:53, By: dlzallestaxes, IP: [188.8.131.52]
L3: IRA to Roth Conversion after starting SEPPNo offense, but that was a worthless response.
If you don’t know about the regulations, why respond at all? I’m not looking for financial advice. I just want to know what the rules are so I can make my own decisions.2009-09-04 23:25, By: alanscott, IP: [184.108.40.206]
L4: IRA to Roth Conversion after starting SEPPDoing a Roth conversion from an existing SEPP TIRA account does not bust the plan – if it is done correctly. The exact dollar distribution must be made for the year between some combination of the TIRA and the Roth IRA. You cannot take part of your SEPP distribution and convert it, because that would be a disallowed rollover. That said, doing a Roth conversion certainly invites an IRS inquiry because the conversion reported on Form 8606 will flow to line 15b of Form 1040 in addition to your SEPP distribution.
You might want to do the conversion if you had separate funds to pay the taxes or your SEPP distributions were more than enough to pay your living costs and there was money left over for the tax payments. If later on during your SEPP you need to tap the Roth IRA, there is no 5 year conversion 10% penalty because the SEPP exception will waive that penalty per Pub 590.
As indicated by dlz, if you do this next year, you will also have to deal with the unique one time reporting requirements for 2010 conversions, although the two year tax deferral might extend the tax payments to dates after your SEPP ends. I assume you are aware of the usual rules for Roth distribution taxation and qualification periods.
That said, I must mention that the IRS has busted two SEPPs for doing partial transfers, and while these rulings appear to be an aberration, your Roth conversion would likely be only a partial conversion of your SEPP TIRA, but one that the IRS will be aware of due to 1099R reporting. Conversely, partial direct transfers between TIRA accounts are NOT reported on Form 1099R or 5498.2009-09-04 23:41, By: Alan S., IP: [220.127.116.11]
L5: IRA to Roth Conversion after starting SEPPNow that was very helpful. Thank you.2009-09-05 11:09, By: alanscott, IP: [18.104.22.168]