L1: SEPP/ROTH CONVERSIONI am 48 years old and I am thinking about taking SEPP for the next 12 years. Am I also able to do Roth IRA conversions annually while taking my SEPP?2015-12-02 10:52, By: Ret48, IP: [220.127.116.11]
L2: SEPP/ROTH CONVERSIONYes, you can convert all (or perhapspart) of the TIRA accounts which comprise your SEPP to a Roth IRA. The Roth IRA account then becomes part of your SEPP plan so your conversions would need to go into a new Roth IRA account. You could then pick and choose from which type of IRA account you would fulfill your remaining SEPP distributions. For example, if using just the TIRA account you would go into a higher bracket, you could take only the amount from the TIRA to top off your current bracket, then take the rest from the Roth IRA. There is no 5 year conversion holding period for the Roth because the SEPP penalty exception waives the 5 year recapture tax as well.
Of course, you would need to pay the taxes from your other funds or from the SEPP distributions you havereceived, so only taxpayers who haveextra funding or no longer need all the SEPP distributions to live on would consider this. To be clear, you still have to withdraw your full SEPP amount and you cannot convert it. The conversions would have to be funded by the remainder of funds still in the TIRA. As a result you would owe taxes on both your TIRA SEPP distributions AND on the amount converted (unless you have IRA basis documented on an 8606).
There is one unresolved issue here, and that is IRS PLR or two that busted SEPP Plans for partial transfers. Assuming that the conversions will be partial, this could present a risk. The IRS Regs clearly state that you can convert within a SEPP, but the Reg may contemplate only total conversions and not partial. It does not address the difference. I think the risk is very minor but exists nonetheless. Another thing to consider is that if you convert you will suddenly be showing a larger distribution on line 15a and 15b than your usual SEPP amount. That could trigger an IRS inquiry since very few at the IRS are familiar with SEPPs, much less a conversion within a SEPP. They would likely just see the red flag of a much higher annual distribution than in prior years.2015-12-02 20:20, By: Alan S, IP: [18.104.22.168]
L3: SEPP/ROTH CONVERSIONWe might all learn something if you could explain your situation, and why you would want to accelerate your taxing of your retirement funds, and possibly pay higher tax rates in the years of conversion. What is the amount of your TIRA ?
Are you going to be maximizing your income in the 15% tax bracket in the years of conversion ?2015-12-03 13:58, By: dlzallestaxes, IP: [22.214.171.124]