SEPP/ ROTH Conversion
L1: SEPP/ ROTH ConversionI currently have a ROTH that is over 5 years old. I also have a traditional IRA that I am taking SEPP distributions from. Can I open a new ROTH and transfer the funds from my traditional IRA into that ROTH without breaking any SEPP rules? I thought it would be OK if I did the conversion into a new ROTH, but I also read that all ROTHs are treated as one so would that conversion be considered a plan modification since I already have funds in another ROTH? It also sounds like I would already meet the 5 year rule on all ROTHs. Am I right? Thanks2012-11-27 21:25, By: maxira, IP: [220.127.116.11]
L2: SEPP/ ROTH ConversionWhat is your date of birth ?
Was your ROTH IRA set up from ROTH CONTRIBUTIONS or ROTH CONVERSIONS ?
If CONVERSIONS, what were the dates of each conversion ?
(The rules are different for CONVERSIONS vs CONTRIBUTIONS.)2012-11-27 22:34, By: dlzallestaxes, IP: [18.104.22.168]
L3: SEPP/ ROTH ConversionDOB: 5-26-55
Roth was setup from contributions2012-11-27 23:08, By: maxira, IP: [22.214.171.124]
L4: SEPP/ ROTH ConversionThe ROTH IRA CONTRIBUTIONS all have the same 5-year “qualifying period” from the beginning of the year for which the first ROTH IRA CONTRIBUTION was made. For example, if you made a ROTH IRA CONTRIBUTION of $ 100 in April 2000 for 1999, and the next ROTH IRA CONTRIBUTIONS started in 2008 thru 2012, they would all have a “starting date” on 1/1/1999, and all earnings/growth on the ROTH IRA CONTRIBUTIONS would be tax-free after 59 1/2.
However, each ROTH IRA CONVERSION has its own 5-year “qualifying period”, and the earnings/growth on each conversion would be taxable until the later of each 5-year period or 59 1/2, similar to SEPP 72-T regulations (but with its own timeframe).
If any of your TRADITIONAL IRA CONTRIBUTIONS were reported as “NON-DEDUCTIBLE”, then this adds another level of complexity to the taxability of your ROTH IRA CONVERSIONS.2012-11-28 00:39, By: dlzallestaxes, IP: [126.96.36.199]
L2: SEPP/ ROTH ConversionThere are two issues here with respect to your questions:
1) SEPP plan requirements
2) Taxation of Roth distributions
IRS Regs permit you to convert from a TIRA that is part of your SEPP to a Roth IRA, but the Roth must be a new Roth. It cannot have a prior balance. Taxes will be due for the conversion in addition to taxes on the SEPP distributions depending on the type of IRA used to fund the SEPP distributions.
All of your Roth IRAs are considered combined for tax purposes, but not for SEPP purposes. The conversion Roth is part of your SEPP plan and the other Roth is not. Therefore, your first Roth distributions from the SEPP Roth are deemed to come from your regular Roth contributions and will be tax free. Next would be your conversion money and that would also be tax free and the 5 year holding penalty would be waived using the SEPP exception. When you reach 59.5 your entire Roth would be qualified, tax and penalty free.
Just be careful not to bust the SEPP plan or penalty and interest would apply to your pre tax and pre 59.5 distributions.2012-11-28 00:22, By: Alan S, IP: [188.8.131.52]
L3: SEPP/ ROTH ConversionThanks.This has been very helpful.
I assume that Ineed to convertthe total TIRAamount to a new ROTH,since thatthe total account was used to calculation the distribution. Do you agree?2012-11-28 16:55, By: maxira, IP: [184.108.40.206]