A Safer Retirement and Environment – What We’re Implementing to Help Keep You Safe: READ MORE

Here at Strategic Partners Unlimited, we are adhering to state and local guidelines in order to protect both the health and safety of clients and staff. Keeping our clients and staff safe is our highest priority and we’re taking all appropriate measures to ensure a safe environment. Should you prefer to not meet face-to-face, we are continuing to serve our clients through virtual settings such as Zoom or phone calls.

We look forward to continuing to help individuals and families achieve their ideal retirements.

Strategic Partners Unlimited
(512) 508-8430

CLOSE

 

ROTH CONVERSIONS AND 2020 RMDS: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
Director of Retirement Education

Question:

In December of 2018 I did my first partial Roth IRA conversion into a new Roth IRA. I’m older than 59 ½.

In December of 2019 I did my second partial Roth IRA conversion into the same Roth IRA opened in December of 2018. The traditional and Roth IRA’s are held at the same company, so the conversions are easy. Does the 5-year waiting period apply to each conversion, or just the first one?

Answer:

We get a lot of questions about the five-year rule for Roth IRA distributions! What makes this area so confusing is that there are, in fact, two different five-year rules that may come into play.

The first five-year rule applies to converted funds. If you are under age 59 ½ you must wait five years to access without penalty any converted funds that were taxable at the time of the conversion. This five- year rule does restart for each conversion.

The good news for you is that this five-year rule will not apply to you because you are over age 59 ½. You do not need to worry about the 10% penalty on converted funds when you take distributions from your Roth IRA.

However, there is a second five-year rule that will affect you. To have a qualified, or tax-free, distribution of earnings from a Roth IRA you must meet an overall five-year holding period, even if you are over age 59 ½. This five-year period begins with your first conversion (or Roth contribution) and does not restart with subsequent conversions. If your 2018 conversion was your first foray into a Roth IRA, then your overall five-year period for tax-free distributions of earnings from all of your Roth IRAs would have begun on January 1, 2018.

Question:

In mid-February, 2020, I rolled money out of my IRA, wrote a check and sent it to my annuity agent who opened up an annuity with an insurance company.  On May 20th, I rolled additional money out of my IRA, wrote out another check to add to my existing annuity, but it never got cashed…and I didn’t resend it as I had just heard of the one-rollover-per-12-month rule.

Can I roll this 2nd distribution back into my IRA since I heard the one rollover requirement every 12 months will not apply in 2020?  (Note: neither rollover was for an RMD as I am not of age yet.)

Many thanks.

Answer:

In Notice 2020-51, the IRS waives the once-per-year rule for 2020 RMDs that are repaid to the same IRA from which they were distributed. These repayments must be done by August 31.

Unfortunately for your situation, this relief only applies to RMDs and not to other IRA distributions. Because you rolled over the February IRA distribution, the once-per-year rule prevents you from rolling over a second IRA distribution within the same 365-day period.

https://www.irahelp.com/slottreport/roth-conversions-and-2020-rmds-todays-slott-report-mailbag

Ready To Take

THE NEXT STEP?

For more information about any of our products and services, schedule a meeting today.

Or give us a call at (512) 508-8430