Permalink Submitted by tomd37 on Tue, 2010-03-30 23:29
Not sure about the question or the first answer. The statement about taking an RMD implies the owner is over age 70.5. He can use the RMD amount to fund a Roth IRA provided he has earned income on which to base his contribution to the Roth IRA. Is that the clients situation?
The client cannot convert his RMD to a Roth IRA. He must take his full RMD first and then convert any additional amount from the remaining traditional IRA to a Roth IRA.
Permalink Submitted by Roy Williams on Wed, 2010-03-31 13:11
Client is over 70 1/2 and by your comment I believe now He cannot convert that to an IRA unless he has earned income and then he can contribute to a ROTH. There is no maximum age to contribute to a Roth if you have earned income?
Permalink Submitted by Aryn Sands on Wed, 2010-03-31 16:07
No, unlike the IRA…there is no age contribution cap.
In terms of the conversion, I don’t understand why they can’t convert the RMD amount???? We are moving money everyday from IRA’s to Roth’s. This satisfies the RMD and turns the money in to tax free legacy money.
Permalink Submitted by mk foss on Wed, 2010-03-31 17:26
They can’t convert the RMD because the Internal Revenue Code doesn’t allow RMDs to be rolled over. The fact that it is taxed as a conversion just as it is taxed as an RMD is not a consideration.
Permalink Submitted by Alan Spross on Wed, 2010-03-31 19:23
There is considerable confusion regarding the RMD requirement being taken first and not subject to rollover, even when those funds are moved directly between custodians.
The controlling factor is whether the transfer must be reported as a distribution or not. A Roth conversion is ALWAYS reported as a distribution and rollover. So is a direct rollover of funds from a qualified plan to another qualified plan or to an IRA. Since these are reported on a 1099R and Form 1040 even when the funds move directly, the RMD must be withheld from the distribution and/or cannot be transferred to the new account without creating an excess contribution.
However, a direct IRA to IRA transfer is NOT reportable on a 1099R and is not considered a distribution. Accordingly, an IRA beneficiary or owner can move IRA funds by direct transfer without dealing with the RMD.
Permalink Submitted by GaRY Yadouga on Tue, 2015-06-02 14:36
I have not taken any RMD from my traditional IRA. I am 65 (dob 2-9-50) and I dont understand what % I need to take as an RMD. I dont intend to take an RMD until required. I believe I am required to take an RMD at age 70.5. But how exactly is the RMD calcuation made?
Permalink Submitted by Jose Morales on Tue, 2015-06-02 16:04
http://www.irs.gov/pub/irs-pdf/p590b.pdf Page 6 of Publication 590b explains when you must withdraw assets from your IRA. You must begin taking required distributions by April 1 of the year following the year in which you attain the age of 70 1/2. You must take a required distribution thereafter by December 31st of each year. You calculate your RMD by taking the prior year end balance (adding back any outstanding rollovers) and dividing by your life expectancy factor as shown on the Uniform Lifetime Table (also in Pubication 590b. It is not a flat percentage and it is not the interest earned on the account, which are two very common mistakes made when attempting to fulfill an RMD.
Permalink Submitted by GaRY Yadouga on Tue, 2015-06-02 14:46
I am 65 years of age. in December 2014 I helped my daughter with a down payment on a house from my ROTH IRA. I hear that I can use traditional IRA money to make a first time home purchase without tax. Can I do that? Should I have used my traditional IRA money instead of the ROTH? If so, can I take remedial action. Thanks
Permalink Submitted by Jose Morales on Tue, 2015-06-02 16:07
The first time home purchase exemption is an exemption from paying a 10% tax penalty for early distribution when you are under the age of 59 1/2. Since you are over the age of 59 1/2 you are already exempt from the 10% tax penalty. Your distributions for a home purchase would not be tax free however, although you could have a portion be tax free if you have made any nondeductible contributions to your IRA.
Permalink Submitted by Aryn Sands on Tue, 2010-03-30 19:58
Yes
Permalink Submitted by tomd37 on Tue, 2010-03-30 23:29
Not sure about the question or the first answer. The statement about taking an RMD implies the owner is over age 70.5. He can use the RMD amount to fund a Roth IRA provided he has earned income on which to base his contribution to the Roth IRA. Is that the clients situation?
The client cannot convert his RMD to a Roth IRA. He must take his full RMD first and then convert any additional amount from the remaining traditional IRA to a Roth IRA.
More specifics needed from the OP
Permalink Submitted by Roy Williams on Wed, 2010-03-31 13:11
Client is over 70 1/2 and by your comment I believe now He cannot convert that to an IRA unless he has earned income and then he can contribute to a ROTH. There is no maximum age to contribute to a Roth if you have earned income?
Permalink Submitted by Aryn Sands on Wed, 2010-03-31 16:07
No, unlike the IRA…there is no age contribution cap.
In terms of the conversion, I don’t understand why they can’t convert the RMD amount???? We are moving money everyday from IRA’s to Roth’s. This satisfies the RMD and turns the money in to tax free legacy money.
Permalink Submitted by mk foss on Wed, 2010-03-31 17:26
They can’t convert the RMD because the Internal Revenue Code doesn’t allow RMDs to be rolled over. The fact that it is taxed as a conversion just as it is taxed as an RMD is not a consideration.
Permalink Submitted by Aryn Sands on Wed, 2010-03-31 17:50
Thanks.
Glad I read these boards! Luckily, we are not doing 100% conversions and the client still has IRA money to do the RMD.
Permalink Submitted by Alan Spross on Wed, 2010-03-31 19:23
There is considerable confusion regarding the RMD requirement being taken first and not subject to rollover, even when those funds are moved directly between custodians.
The controlling factor is whether the transfer must be reported as a distribution or not. A Roth conversion is ALWAYS reported as a distribution and rollover. So is a direct rollover of funds from a qualified plan to another qualified plan or to an IRA. Since these are reported on a 1099R and Form 1040 even when the funds move directly, the RMD must be withheld from the distribution and/or cannot be transferred to the new account without creating an excess contribution.
However, a direct IRA to IRA transfer is NOT reportable on a 1099R and is not considered a distribution. Accordingly, an IRA beneficiary or owner can move IRA funds by direct transfer without dealing with the RMD.
Permalink Submitted by GaRY Yadouga on Tue, 2015-06-02 14:36
I have not taken any RMD from my traditional IRA. I am 65 (dob 2-9-50) and I dont understand what % I need to take as an RMD. I dont intend to take an RMD until required. I believe I am required to take an RMD at age 70.5. But how exactly is the RMD calcuation made?
Permalink Submitted by Jose Morales on Tue, 2015-06-02 16:04
http://www.irs.gov/pub/irs-pdf/p590b.pdf Page 6 of Publication 590b explains when you must withdraw assets from your IRA. You must begin taking required distributions by April 1 of the year following the year in which you attain the age of 70 1/2. You must take a required distribution thereafter by December 31st of each year. You calculate your RMD by taking the prior year end balance (adding back any outstanding rollovers) and dividing by your life expectancy factor as shown on the Uniform Lifetime Table (also in Pubication 590b. It is not a flat percentage and it is not the interest earned on the account, which are two very common mistakes made when attempting to fulfill an RMD.
Permalink Submitted by GaRY Yadouga on Tue, 2015-06-02 14:46
I am 65 years of age. in December 2014 I helped my daughter with a down payment on a house from my ROTH IRA. I hear that I can use traditional IRA money to make a first time home purchase without tax. Can I do that? Should I have used my traditional IRA money instead of the ROTH? If so, can I take remedial action. Thanks
Permalink Submitted by Jose Morales on Tue, 2015-06-02 16:07
The first time home purchase exemption is an exemption from paying a 10% tax penalty for early distribution when you are under the age of 59 1/2. Since you are over the age of 59 1/2 you are already exempt from the 10% tax penalty. Your distributions for a home purchase would not be tax free however, although you could have a portion be tax free if you have made any nondeductible contributions to your IRA.