txdd

Based on your stated caveats, she would be able to make a deductible contribution before 4/15/18 for 2017. However, that contribution does not affect her 2018 RMD. Use the actual account balance on 12/31/17 to calculate.

Yes, it's chronological. The RMD from her traditional IRA(s) (all added together if she has more than one) must be taken before any other withdrawals, including Roth conversions, from any IRA. 401k's are treated separately so any extra IRA withdrawals can occur before taking her 401k RMD.

The 2018 RMD is based on the 12/31/17 value. Although the first RMD can be deferred into 2019, she can't convert anything to Roth before taking the 2018 RMD. In other words, the first RMD must be withdrawn BEFORE a Roth conversion in 2018. Q2: Her custodian should send her a form showing the year-end value. Use that number to figure the RMD.

Most obvious example (to me) is an employee who terminates before the year he/she reaches 55. Then the age 55 exception does not apply and he/she must wait until age 59 1/2.

A few points: Any conversion in 2010 is a 2010 conversion. You must have W-2 or SE earnings in 2009 and 2010 to support your contributions. Report your non-deductible IRA contributions on Forms 8606 for both 2009 and 2010. Very important ... The taxability of your Roth conversion is determined in combination with ALL your traditional, SEP, and SIMPLE IRA's, not just this one. The conversion will probably be partially taxable if you have any other IRA's.

The "loophole" only works if the taxpayer has no other traditional IRA's. ALL traditional IRA's must be aggregated to determine the taxability of the Roth conversion from an IRA.

From 1099-R instructions: Code 2 includes this exception: "A distribution from a qualified retirement plan after separation from service in or after the year the taxpayer has reached age 55." Seems like it applies here, i.e. she reached 55 in year of termination.

Freeness, To figure out taxable earnings on a corrective IRA distribution, you ignore the terms: stock, dividend, capital gain, shares, buy, sell. The only thing that matters is the appreciation of the IRA account during the period it contains the contribution. That appreciation includes the entire account, not just the particular investment of the contribution. See the worksheet on page 33 of the 2007 Pub 590 for the procedure although many custodians will calculate the earnings for you. Unfortunately, the earnings are taxed and possibly penalized in the year of the contribution, 2007 for you. That means an amended return and maybe some additional interest owed to the IRS. If the earnings are significant, you should consider recharacterizing the contribution to a traditional IRA even if the contribution is non-deductible. That move avoids reporting any new income but still requires an amended return to report the traditional IRA contribution (either deductible or non-deductible).

Just because you can't contribute to a Roth doesn't mean it's "just sitting there". What you have can grow for the rest of your life tax free. That's usually a pretty good deal. Even though stocks have been down lately, VFINX has appreciated over 15% since June/05. That gain would, in most cases, be taxed and penalized if you withdrew it now. You can change your investment at any time with Vanguard or transfer your Roth to another custodian with no tax consequences. You can't transfer your account to your wife. She can certainly contribute to her own account if eligible. However, if you have too much income jointly then neither of you is eligible. The income limit for Roth conversions goes away starting in 2010. If you have traditional IRA accounts by then, you can convert to Roth and build up your Roth balance at that time.

Sorry, referring you to the IRS worksheet IS the easy answer since the calculation of MAGI involves lots of details. Your question lacked some critical information. I assume that you are asking about Roth contribution limits since the time for making Roth conversions for 2007 is gone. The MAGI limits depend on your filing status: single, married joint. etc. You really should read the relevant parts of Pub 590. The place to start to figure MAGI is your AGI which already excludes any pre-tax 457/401k. So, if the "119g" you made last year is your AGI, then you do NOT deduct your employer plan contributions.

First, get IRS Pub 590 and read the section titled "What if you contribute too much?" in the Roth chapter. Pub 590 also has worksheets for figuring your Modified AGI (MAGI) for Roth contribution limits and your maximum Roth contribution. If you are married filing jointly, the Roth contribution phaseout range for MAGI was $150K-$160K for 2006. This means that you could have made your full Roth contributions if your MAGI had been below the first number and zero if above the second number. In between, the limit declines more or less proportionally. The MAGI range is now adjusted each year for inflation. For 2007, the range is $156K-$166K. The deadline for penalty free correction of 2006 excess contributions was Oct 15, 2007. You are now probably faced with the penalty of 6% of the excess. To avoid further penalties, you have the option of removing the excess plus earnings or applying the excess to your 2007 Roth contribution. Any earnings you remove are taxable in the year of the contribution. If you are over the limit for 2007, you can make corrections penalty free until Oct 15, 2008 by withdrawing the excess plus earnings.

High income does not keep you from HOLDING a Roth IRA. It just limits new contributions in those years with high income. Existing Roth IRA's go on unaffected regardless of income. Higher future income makes Roth IRA's even more valuable in most cases. Also, the $95K MAGI limit where the max Roth contribution for a single taxpayer BEGINS to go away is an old number which is now indexed for inflation. It's $99K in 2007.

For the year in which you rolled over your old 401k to your IRA, you should have received a 1099R form from the 401k plan stating your after-tax contributions in Box 5. If this amount was included in the rollover, i.e. not paid to you directly, it is the basis of your IRA's. As you dispose of your traditional IRA's, either by withdrawal or Roth conversion, you will recover this amount tax free in proportion to your total traditional IRA balances. See Form 8606.

I think you are correct unless there was a later IRA conversion involved. A conversion starts a new 5 year clock with respect to the conversion amount. I wouldn't call it a loophole though. The main advantage of a Roth IRA is long term accumulation of tax free earnings. Taking it all out after only 5 or so years really shortchanges the investor.

To determine the taxable amount of any withdrawal (including a Roth conversion) from a traditional IRA, you must consider ALL of an individual's traditional IRA's taken as a whole. This means that your proposal for making non-deductible contributions until 2010 and then converting to Roth with just earnings taxable will only work if you have no IRA funded by deductible contributions or by rollover from a qualified plan. For instance, if you have no IRA now, rollover your $200K 401k to an IRA, and contribute $20K non-deductible, your Roth conversion will be about 1/11 tax free ($20K basis/$220K total balance with no earnings) and 10/11 taxable. It doesn't matter at all whether you have one or multiple IRA's. For a married couple, each spouse determines IRA withdrawal taxability independently by looking only at the basis, balance, and withdrawals for all traditional IRA's owned by that spouse.

Roth conversion income is excluded from Modified AGI for Roth IRA purposes so there should be no reduction in your Roth contribution limit.

A few points ... A self-employed person can't treat any payment to herself as a business expense. Her earnings/salary is just whats left over from business revenue after subtracting business expenses. The elective SIMPLE contribution for the self-employed person is limited to net self-employment income as shown on Schedule SE. If there is a loss for the year, then no contribution. (All contributions on behalf of the self-employed person are adjustments on Form 1040, not business expenses.) She can employ you, but your total elective contributions to 401k and SIMPLE are limited to $15,500 in 2007. If you max out your 401k, you can't put anything in SIMPLE. Also if employed, you and she (as your employer) would have to pay all the payroll taxes. Since you both participate in employer plans (SEP and SIMPLE are), the deductibility of your traditional IRA contributions is limited or eliminated if your joint AGI exceeds $83,000 in 2007.

Contributing to a 401k has no effect on your combined traditional/Roth IRA contribution limit: $5,000 in 2006 and 2007 if you're over 50. Participating in a 401k can affect the deductibility of a traditional IRA contribution. Also, your 401k contributions reduce your AGI which can affect your eligibility to make Roth contributions. See the details in IRS Pub 590.

You can have as many IRA accounts as you want to pay the fees for. The COMBINED contributions to all your traditional and Roth IRA's for 2006 cannot exceed $4,000 if under 50 years old.

If the daughter can't get any relief from plan rules, it might still make sense to forego the 2006 RMD, pay the 50% penalty, and rollover to IRA in 2007. The future tax savings might more than make up for the penalty. It depends on the daughter's age and assumptions about future income and tax rates. Worth considering.

Does the IRA custodian really require the 5-year distribution rule? If so, I think they were derelict in not liquidating the account after 5 years. IRS rules also allow yearly distributions over the beneficiary's life expectancy. If the the account had zero value all these years, the RMD's would have been $0. The first non-zero RMD would be in the year after the stock regains some value.

alrtx - You are paying about 1% more expenses per year than you would if you had a larger account. That's not huge, but it is a significant drain on earnings. Off the top of my head, I see several ways out of this: 1. A custodian with no/lower fees or lower threshold. That's probably hard to find for a broker or fund company with wide investment choices. A bank or credit union would likely have no fee CD's and such available, but that really limits your options. 2. Move assets to Vanguard in taxable accounts to get above their combined account, no fee threshold. That might take more than you have available, but it's fairly painless. 3. Roth IRA conversion if you meet the $100k AGI limit and will have combined Roth assets to meet the size thresholds. I think that AGI limit disappears in 2010. 4. New traditional IRA contributions. Pretty much anyone under 70.5 with joint earned income can contribute to a trad IRA. Only the deductibility is income limited. If you make a non-deductible contribution, you file Form 8606 with your tax return to establish your after-tax "basis" in your IRA. When you withdraw money, part of the withdrawal will be tax free.

wdc: The taxability of Roth conversions is based on the deductible/non-deductible history of ALL of an individual's IRA's. If you built up an IRA with deductible contributions in your old low-income days or you rolled over a large amount from an employer plan into an IRA, then most of the amount you convert to Roth will be taxable even if you start making non-deductible contributions now. This is true even if you keep your non-deductible IRA separate. So for many if not most people, the new ability to Roth convert is NOT the equivalent of removing income limits on Roth contributions. Each individual's situation must still be considered to determine whether a Roth conversion is a good idea.

Be sure to check on any fees the bank might have for IRA transfers. If they charge for trustee to trustee transfers (That's where the bank send the money directly to the broker.), you could consider a rollover (That's where you withdraw the money and deposit it with the broker within 60 days.). Transfers are cleaner and unlimited. Rollovers can't be repeated on the same accounts for 12 months, and some brokers resist accepting rollovers. Rollovers must also be reported on your tax return (but no tax). Re the previous reply, Roth contributions are not reported to the IRS by the owner, only by the custodian.

IRS rules for distributions from Roth IRA's are clear but also complicated. Probably too complicated for phone reps or this board to explain. Since you are less than 59.5, you are PROBABLY subject to the 10% penalty (only on the amount in excess of your contribution). There are exceptions. Get IRS Pub 590 and read the paragraphs under "Are Distributions Taxable?" in the Roth IRA section. You can judge whether it makes sense to pay for advice based on the amount of the potential penalty. If you don't think you meet any of the listed exceptions, you are likely better off just paying up.