SEPP WITHDRAWALS – DIRECTED TO A ROTH IRA
L1: SEPP WITHDRAWALS – DIRECTED TO A ROTH IRAcan the dollars from the SEPP schedule be rolled into a ROTH IRA?2012-05-05 09:08, By: nick, IP: [22.214.171.124]
L2: SEPP WITHDRAWALS – DIRECTED TO A ROTH IRAContributions to any IRA must be based on earned income. If you have earned income, the you may be eligible to make Roth IRA contributions. See IRS publication 590 for Roth IRA eligibility requirements.2012-05-05 09:52, By: Gfw, IP: [126.96.36.199]
L3: SEPP WITHDRAWALS – DIRECTED TO A ROTH IRAYou can make a regular Roth contribution if you otherwise qualify, but you cannot roll (convert) amounts that you distributed as part of your SEPP. You CAN convert additional amounts over and above your SEPP distributions, but would then owe taxes on the total distributed.
Example: Your annual SEPP distribution is 24,000. If you want to convert 10,000, then your total taxable distributions would equal 34,000. The 10,000 would have to go into a NEW Roth IRA account and that account would become part of your SEPP universe. You could then take out your annual 24,000 in any combination you wish between your traditional and Roth IRA accounts. You have to be very careful to avoid making a critical error if you plan to do this, and may have to answer an IRS inquiry despite the fact that IRS Regs clearly allow a conversion within your plan. It is very rare and the IRS rarely sees these.
Your question suggests that your annual SEPP distribution may be more than what you need. That’s usually the case when the idea of a Roth conversion comes up. Another alternative would be to reduce your SEPP distribution by making the one time switch to the RMD method. That may lower your distribution by 40% on the average, preserve your IRA assets and reduce your taxes.2012-05-05 18:29, By: Alan S, IP: [188.8.131.52]