Roth Conversions Under the SECURE Act: Today's Slott Report Mailbag
By Sarah Brenner, JD
Director of Retirement Education
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I am 83 years old with an IRA rollover account, regular IRA account and a small Roth IRA. If I convert a portion of either the rollover or regular IRA to a Roth IRA and die before 5 years after the conversion, is there any penalty to me or the beneficiaries? Also, can I convert to the existing Roth IRA or should I start a new Roth IRA? I do not plan to make any withdrawals from any Roth IRA. Does it make a difference from which IRA I convert funds?
Thank you for your response,
You can convert either the regular IRA or the IRA that was funded by a rollover. From a tax perspective it will make no difference. Unless you have some after-tax dollars in either IRA, the conversion will be fully taxable. You can also add the conversion to your existing Roth IRA. Starting a new Roth IRA would have no tax benefit.
When it comes to distributions to your beneficiaries, there would be no 10% penalty regardless of whether a five-year period has been satisfied. That is because the 10% early distribution penalty never applies to distributions from inherited IRAs. The only issue would be that your beneficiaries would have to wait out your five-year period to receive a qualified tax-free distribution of earnings.
If I have a client (husband and wife filing jointly) with earned income. Can they continue to contribute to a Traditional IRA beyond age 73?
The SECURE Act brought good news for older individuals with earned income looking to contribute to a Traditional IRA. Starting for 2020 contributions, the rule prohibiting contributions once an individual reaches age 70 1/2 no longer exists. If your clients have earned income they can go ahead and make Traditional IRA contributions regardless of their ages.
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