Updated Thursday, July 31, 2014 as of 7:34 AM ET
Blogs - Ask Ed Slott
Ask Ed Slott: Your IRA Expert
Friday, September 28, 2012
Partner Insights

Is it possible to perform more than one taxable Roth conversion during one 12-month period? Thanks you.

Amy Brocious

Yes it is. The one-rollover-per-year rule does not apply to conversions to Roth IRAs.

I began my 401(k) Roth deferrals in 2005 and contributed $3,000.  In 2010, I put $5,000 in a Roth IRA.  I rolled the 401(k) Roth funds into Roth IRA in 2011 (due to loss of job).  Then later in 2011, I rolled the entire Roth IRA to another company (where current plan is).  

Does the 5-year clock start over in 2010, 2011?  Or does each Roth type (IRA and 401k) have 2 different 5-year clocks?  Thank you.

The rules are a bit complicated, but basically the rollover from your Roth 401(k) to your Roth IRA in 2011 was six years from when you contributed in 2005. So if you were age 59 or older when you did the rollover, then the rollover is considered a qualified distribution. For a qualified distribution of a Roth 401(k) to a Roth IRA, the

entire amount of the distribution will be treated as a regular contribution (basis) and is available for distribution tax free. The 5-year Roth IRA holding period would not apply to these funds.

If you were not age 59 or older when you did the rollover from the employer plan, then the rollover is considered a non-qualified distribution. When a non-qualified distribution is rolled over to a Roth IRA, the portion of the distribution that constitutes a non-taxable return of investment in the contract (your Roth 401(k) deferrals) is treated as contributions (basis) in the Roth IRA for the purpose of the ordering rules. The 5-year holding period for the distributions of earnings on those funds will be the period applicable to the Roth IRA which started in 2010.

I have a substantial IRA that goes into a trust when I die and whereby my spouse will continue to draw the income from the IRA upon my death and upon her death the IRA goes to my grandchildren. However, I have been told that if I die, the IRA must be liquidated and that the only way it would not be liquidated is if my wife is the sole beneficiary. My question is two fold. Is this correct? Or is there another way that my wife could benefit from the income generated by the IRA without the government taking a big chunk?


Pat B

No it's not correct. Remember that your IRA does NOT "go into" a trust at your death. The trust becomes the beneficiary of the IRA and only has to take RMDs from the inherited IRA each year. There is no rule that says that if your wife is not the sole beneficiary, the IRA must be liquidated. If the trust is a look-through trust, then death distributions will be made using your wife's single life expectancy. If the trust is not a look-through trust, then death distributions will be paid over five years if you die before your required beginning date (RBD, generally April 1 of the year after attaining age 70 ), or paid over your remaining single life expectancy if you die after your RBD.

(1) Comment
Ed, I have a friend whose father just died. He had a small IRA, where he had a family trust as bene. The family trust goes to 6 kids equally, 2 of whom are not US citizens and have no social security number. My friend has been told she can just have the IRA distributed to the 6 kids without it going thru the Trust. She's unclear about how to handle the non-US kids, as she wants to make sure the US taxes are handled properly. What should she do for their distributions? Thanks, Dena
Posted by dena m | Friday, September 28 2012 at 2:04PM ET
Post a Comment
You must be registered to post a comment.
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.
2014 Summer Reading List for Advisors

Current Issue

The July Issue is now online!


Industry Events

August 10, 2014 |

September 9, 2014 |

September 17, 2014 |

September 20, 2014 |

September 28, 2014 |

Already a subscriber? Log in here