60-Day Rollovers and Roth Conversions: Today’s Slott Report Mailbag

Thursday, April 29, 2021

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

I was wondering if, after a person leaves employment and they are sent a required minimum distribution (RMD) from their plan (sent as a check, taxes withheld), would it be considered a rollover if the ex-employee wants to open up an IRA on her own to put the money in within the 60-day timeline to avoid the taxes?

Thank you

Steve

Answer:

Steve,

RMDs are not eligible to be rolled over. Even if a person separated from service from her employer, the RMD still applies for the year. If that payment is sent to the ex-employee, it is still an RMD, and it must still follow the RMD rules. If an RMD is mistakenly rolled over, it is treated as an excess contribution and must be timely withdrawn to avoid penalty.

Question:

My question is as follows: I converted (no contributions were made) funds from my self-directed IRA to my Roth IRA. I am over 59 ½, but my Roth IRA is only one year old. May I withdraw the conversion amount without the 10% penalty under the age exception to the 5-year rule?  So far I have received opinions from two CPAs which totally contradict each other. Thanks for your help.

Answer:

I can say with 100% confidence that yes, you can withdraw the converted amount with no 10% penalty. In fact, you can withdraw the entire Roth IRA with no penalty because of your age. Once a person reaches age 59 ½, he has full access to his IRA dollars penalty free. The real questions is: when will the earnings in your Roth IRA be tax free? You said your Roth IRA is only 1 year old. Assuming this is your first and only Roth IRA, you will have to wait until the Roth IRA is 5 years old before all earnings will be tax free.

 

 

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