SEPP/Roth Conversion

You are here:
< Back

L1: SEPP/Roth ConversionThank you so much for this site. My DOB is 12/28/1950 and my first 72t SEEP distribution was made 5/8/2006 with four more annual didtributions each year after that. Is there any chance that I would be able to convert funds from this IRA account this year to a Roth IRA to take advantage of the 2010 income rules and the ability to spread taxes due over 2011 and 2012. It is my only IRA and is before my last modification date of May 8, 2011. Thanks.2010-06-22 01:55, By: Mike, IP: [72.219.253.31]
L2: SEPP/Roth ConversionI would not necessarily do it, unless you expect to have income in 2011 and 2012 that will be above the ROTH IRA conversion limits. I would prefer the flexibility of determining the ROTH CONVERSION amounts during 2011 and 2012, and not be bound by a conversion done now. While this is a permitted approach, per recent postings, I’m not sure that the IRS will understand it that way, and could lead to intervention by the IRS that could be easily avoided.Of course, if you are SURE that your ROTH CONVERSION assets will appreciated significantly over the next 20-30 months, or that your tax rates will increase significantly in 2011 and 2012, then I might agree with you.Since you are already 59 1/2, and have taken 60 months worth of distributions, you have complete flexibility from -0- to 100% of your IRA to be distributed in each year for the next 10 years. You might also consider the flexibility of income and tax planning in conjunction with SS benefit deferral to age 70 in order to get a 32% increase in your SS benefits for yourself and your spouse by waiting until age 70.You might want to engage a tax or financial planner to prepare spreadsheet comparative analyses of the various alternative approaches.2010-06-22 03:46, By: dlzallestaxes, IP: [72.78.110.86]

L3: SEPP/Roth ConversionThank you for your responses. One more question. Although I am 59 1/2 now and have taken five total annual distributions (2006,7,8,9,10), my actual last modification date is 5/8/2011. What are my options for withdrawingIRA funds in 2011? Must I take a full annual Sepp distribution if I take anything prior to my last mod. date of 5/8/2011? Thanks.2010-07-29 06:18, By: mike, IP: [64.12.117.18]

L4: SEPP/Roth ConversionNo, you will have 3 options for 2011 prior to your plan modification date:1) Take -0- because you have already taken 60 months prior to 20112) Take out 4 months worth3) Take out 12 months worthAfter the mod date, your options are unrestricted. But if you take distributions under the plan prior to the mod date and also after the mod date, you will end up with 2 1099R forms to report and possibly have to use a 5329 to change the distribution code. This is not a big deal, just adds a touch more complexity.2010-07-29 22:23, By: Alan S., IP: [24.116.165.60]

L2: SEPP/Roth ConversionYou can definitely convert all or part of your TIRA to a Roth IRA without busting your SEPP plan. Just remember that you cannot convert any part of the required SEPP distribution. I understand that you have already taken the full annual SEPP distribution for 2010.Your SEPP will not deny you any of the full range of flexibility in dealing with this conversion. In other words, you have until 10/17/2011 to recharacterize all or part of the conversion and also to opt out of the two year deferral if you wish and report the conversion income in 2010. But you probably would not do that since it will double up with your SEPP distribution as 2010 taxable income. I do concur that even though the IRS Regs specifically authorize a Roth conversion as part of a SEPP plan, this is rare enough to trigger an IRS inquiry simply because the IRS’ understanding of SEPPs is rather spotty. You might therefore get an inquiry but can supply them witha reference to their own Regs if need be.Please advise if you need a copy of the IRS Reg.2010-06-22 05:09, By: Alan S., IP: [24.116.165.60]

L3: SEPP/Roth ConversionAm Icorrect in understanding from the above that, as long as it does not involveSEP withdrawals,it ispermissable to convert part of aSEPP IRA to a Roth at any time?
Thank you.2010-08-23 14:33, By: Rupertdacat, IP: [24.148.10.164]

L4: SEPP/Roth ConversionCorrect. Just be aware of the pitfalls and how to correctly report all the transactions on your tax return. Here is a copy of the IRS Reg allowing conversions within a 72t plan:
>>>>>>>>>>>>
Reg 1.408A-4
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).
>>>>>>>>>2010-08-23 20:38, By: Alan S., IP: [24.116.165.60]

L5: SEPP/Roth ConversionAlan S.-
That is exactly what I was hoping for. Thank you.
Rupe

2010-08-24 02:25, By: Rupertdacat, IP: [66.41.166.199]