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conversion of ira to roth


Guest Dan Shea

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Guest Dan Shea

I have a client who has $650,000 in an ira that she is taking substantially equal pymnts last 5 years (now age 53), of $21,000 out and would like to convert some of exsisting ira to roth can she do this? how much should be left in exsisting ira to insure distribution stream is not upset? anyone have a case like this appreciate your input.

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Guest PVICKERS

The regs issued last week allow conversion and continuation of the "substantially equal" payment stream from either the residue of the original IRA, or the Roth conversion. Thus, she could donvert the whole account. (I am assuming that the annual payments are under the 72(t) exception).

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Guest PVICKERS

On another issue from the regs. 1.408A-5 Q/A 6 says "once made the election (to recharacterize) may not be modified". However, several articles are advocating undoing prior conversions and then reconverting now to take advantage of the marmet decline to produce a lower tax liability.

Does anyone have any thoughts, opinions, or knowledge on the permissibility of this?

Thank you

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Guest ezollars

On the substantially equal payments--while the proposed regulations do allow the conversion, the beneficiary will have to continue to withdraw future payments due from the Roth IRA to keep from having prior withdrawals subjected to the penalty retroactively.

On the issue of undoing a Roth and rolling again--it appears, based upon a literal reading of the proposed regulations, that this is doable. Whether it remains doable after we get final regulations is open to question, but my suspicion is that up until we get final regulations it probably will work.

Barry Picker has an article on the Roth IRA web site (http://www.rothira.com) that discusses the issue.

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The propsed regulations specify that the substantially equal periodic payment must come "from the Roth IRA after the conversion." Arguably, however, in the case of a partial conversion apportionment is required. GSL

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I think the best way to interpret Q/A 6 is that the "election" cannot be revoked, but that that the amount can be recharacterized. From a reporting point of view this makes sense (although the reporting rules do not provide the IRS with the info they need when accounts are going up and down in value). Information that will be required to be attached to Form 8606 will most likely provide the IRS with the remaining information needed for tax compliance and administration.

I do believe that a converted amount can be recharacterized and then converted again (at hopefully a lower value).

[This message has been edited by Gary Steven Lesser (edited 09-17-98).]

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  • 1 month later...
Guest greymann

IRS Notice 98-50 was just released. Under this notice, the IRS has set forth interim rules governing the number of times one may "recharacterize" and then "reconvert". In short, effective on or after 11/1/98, one may only reconvert once per year. Before this notice, it appeared that an unlimited number of reconversions could be made, so that one could continue to lower their conversion tax (in a bear market), but that is obviously not the case now as a result of this notice.

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