Partial Conversion to a Roth IRA
L1: Partial Conversion to a Roth IRAI started an SEPP distribution from a traditional IRA in 2005 at age 55. In November 2009, I converted part of my traditional IRA to a Roth.2009 was my 5th year of distributions and I past age 59 1/2 in September, 2009. Have I violated the SEPP requirements for 2009 by doing this.If I did violate my SEPP, is only 2009 affected or all the years back to 2005?2010-06-01 03:21, By: Jim, IP: [22.214.171.124]
L2: Partial Conversion to a Roth IRAWas the ROTH CONVERSION in addition to your regular SEPP distributions, or in place of some, but not in excess of your annual limit for 2009 ? If your SEPP 72-T “universe” was your only Traditional IRA account, then you had to wait for the 5-year/60 month anniversary of your 1st distribution to take additional distributions after 59 1/2. Even if you started in January 2005, that would be January/February 2010. Therefore, you have probably “busted” your SEPP 72-T, and owe the 10% penalty on ALL CUMULATIVE DISTRIBUTIONS since you started it. You should have asked this question BEFORE doing it. You’ve probably made a very costly mistake.2010-06-01 15:00, By: dlzallestaxes, IP: [126.96.36.199]
L3: Partial Conversion to a Roth IRAIf your Roth conversion to a new Roth IRAwas in addition to the amount you were required to distribute according to your SEPP plan, your plan remains valid. But if your conversion was PART of your SEPP distribution amount, then you busted your plan by rolling over (conversion = rollover) SEPP distributions that are not eligible for rollover.Determine when your modification date is for your plan to determine what options you have this year prior to the modification date. If your SEPP remained valid through 2009 and your Roth conversionper the paragraph above, then your SEPP universe was expanded to include both your TIRA and your new Roth IRA. Accordingly, any SEPP distributions after your conversion could have come from either of those IRA types in any combination. You will need a 5329 in the event that one of the custodians used a Code 1 on the 1099R improperly.While the validity of your plan depended on how you structured your 2009 conversion, you still need to correctly deal with your 2010 SEPP distributions to avoid busting the plan in 2010 if it was still valid after 2009. Following is copied from the IRS Regs 1-408A-4indicating that you CAN do a Roth conversion from your SEPP IRA account if you meet the requirements stated:>>>>>>>>>>>>>>>>>>
Q12. Can an individual convert a traditional IRA to a Roth IRA if he or she is receiving substantially equal periodic payments within the meaning of section 72(t)(2)(A)(iv) from that traditional IRA?
A12. Yes. Not only is the conversion amount itself not subject to the early distribution tax under section 72(t), but the conversion amount is also not treated as a distribution for purposes of determining whether a modification within the meaning of section 72(t)(4)(A) has occurred. Distributions from the Roth IRA that are part of the original series of substantially equal periodic payments will be nonqualified distributions from the Roth IRA until they meet the requirements for being a qualified distribution, described in 1.408A6 A1(b). The additional 10-percent tax under section 72(t) will not apply to the extent that these nonqualified distributions are part of a series of substantially equal periodic payments. Nevertheless, to the extent that such distributions are allocable to a 1998 conversion contribution with respect to which the 4-year spread for the resultant income inclusion applies (see A8 of this section) and are received during 1998, 1999, or 2000, the special acceleration rules of 1.408A6 A6 apply. However, if the original series of substantially equal periodic payments does not continue to be distributed in substantially equal periodic payments from the Roth IRA after the conversion, the series of payments will have been modified and, if this modification occurs within 5 years of the first payment or prior to the individual becoming disabled or attaining age 59 1/2, the taxpayer will be subject to the recapture tax of section 72(t)(4)(A).>>>>>>>>>>>>>>>
2010-06-01 19:26, By: Alan S., IP: [188.8.131.52]
L4: Partial Conversion to a Roth IRAThanks, Alan S.As it turns out, a couple hours ago I found 26 CFR Part 1 – 1.408A-4 Q12:A12 that you just posted. I knew I had seen this section referenced in an article last year when I did my partial conversion. Yes, the partial conversion to my Roth was in addition to my 72(t) distribution. I did a partial conversion late in 2009 to “use up” my 15% tax bracket for the year. As I turned 59 1/2 in 2009 (final year of 5 under the SEPP) I received two separate 1099-Rs from Fidelity (plan administrator). The first one was coded “1” for the SEPP up until hitting 59 1/2 and then the second was coded “7” since the conversion and the rest of the SEPP distribution was after 59 1/2 and considered a normal distribution. Should be fun explaining that to the IRS if my returns are audited.By the way, I am being examined (or audited) for 2008 in regards to taxable IRA distributions – they evidently lost my 8606 forms for my wife and I. Also, even though they have my 5329 (I called when I first got my notice), they are saying I owe the 10% early distribution penalty.Just like a previous poster state, they saidthe 5329was fine but it needed to agreewith the 1099-R. I did get a form letter from Fidelity to send back with my reply – we’ll see what happens. I’ll post a separate thread later with updates. Any initial advice?2010-06-01 19:48, By: Jim, IP: [184.108.40.206]