I am 59 (not 59.5) and my husband is 65. We have participated in a SIMPLE IRA with our company for more than two years. Can we convert the SIMPLE IRA to a Roth IRA? If we can convert, do we have to pay tax on the SIMPLE IRA money placed in the Roth? Are t

During the first two years after a SIMPLE IRA is established, assets held in the SIMPLE IRA must not be transferred or rolled over to another retirement plan. Since you have met the two-year requirement, your SIMPLE IRA assets may be converted to a Roth IRA. The amount you convert will be treated as ordinary income, subject to income tax.

The early-distribution penalties that apply to distributions made before the IRA owner reaches the age of 59 ½ do not apply to Roth conversions. Therefore, you will not owe early-distribution penalties on the amount you convert to your Roth IRA, regardless of your age at the time the conversion occurs.

To be eligible for a Roth IRA conversion, your modified adjusted gross income (MAGI) must not exceed $100,000. This $100,000 limit applies to individuals who file as single, as well as individuals who file as "married filing jointly". Therefore, if your and your spouse's combined MAGI exceeds $100,000 for the year, neither of you is eligible for a Roth IRA conversion. In addition to meeting the income requirements, your tax filing status must be "single", "head of household" or "married filing jointly". Individuals who file as "married filing separately" are not eligible for a Roth conversion.

For assistance in computing your MAGI, refer to IRS publication 590 or the instructions for filing IRS Form 8606, both available at www.irs.gov. Use the second search bar to locate the documents. (To learn more about SIMPLE IRAs and other retirement plans, see A Tour Through The Different Retirement Plans.)

This question was answered by Denise Appleby
(Contact Denise)




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