Rolling Over Simple IRA to Roth IRA in 2010


W

W

IRS Publication 560 2009 on page 2 says that a Simple IRA can be rolled over
to become a Roth IRA in 2010. IRS Publication 590 2009 page 71 contains
the statement "However, you cannot convert any amount distributed from the
SIMPLE IRA during the 2-year period beginning on the date you first
participated in any SIMPLE IRA plan maintained by your employer."

Employee X first participates in the Simple IRA plan on 12/30/2008 with
final participation on 12/31/2009, and no participation in 2010.

Question 1: Can Employee X convert the entire Simple IRA contributions made
starting from 12/30/2008 on 12/30/2010?

Question 2: Is Employee X restricted from converting this Simple IRA plan
on any day in 2010 prior to 12/30/2010?

Assuming the answer to question 1 is yes, then tactically how can this be
done in a limited two day window? I suppose the Roth IRA can be created
without a contribution at some early point in 2010, which gives some target
account into which the conversion funds will be placed. But is there some
specific form number that the broker must then file, whose exact date must
say 12/30/2010? Or is the requirement that the actual funds be deposited
on 12/30/2010?
 
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A

Alan

IRS Publication 560 2009 on page 2 says that a Simple IRA can be rolled over
to become a Roth IRA in 2010. IRS Publication 590 2009 page 71 contains
the statement "However, you cannot convert any amount distributed from the
SIMPLE IRA during the 2-year period beginning on the date you first
participated in any SIMPLE IRA plan maintained by your employer."

Employee X first participates in the Simple IRA plan on 12/30/2008 with
final participation on 12/31/2009, and no participation in 2010.

Question 1: Can Employee X convert the entire Simple IRA contributions made
starting from 12/30/2008 on 12/30/2010?

Question 2: Is Employee X restricted from converting this Simple IRA plan
on any day in 2010 prior to 12/30/2010?

Assuming the answer to question 1 is yes, then tactically how can this be
done in a limited two day window? I suppose the Roth IRA can be created
without a contribution at some early point in 2010, which gives some target
account into which the conversion funds will be placed. But is there some
specific form number that the broker must then file, whose exact date must
say 12/30/2010? Or is the requirement that the actual funds be deposited
on 12/30/2010?
I think you are misinterpreting the law. The employee can roll
over his Simple IRA any time he wants. If he happens to do it
withing the two year statutory period that starts with the day
the employer first deposited funds into his Simple-IRA, and the
rollover account is not another Simple-IRA, then the distribution
is taxable and there is an early withdrawal penalty of 25%.

I believe the two year period is measured from the start point to
the day of distribution. As long as two years elapse before the
distribution that ultimately winds up in some account other than
a Simple-IRA, the penalty would be avoided.
 
W

W

Alan said:
I think you are misinterpreting the law. The employee can roll over his
Simple IRA any time he wants. If he happens to do it withing the two year
statutory period that starts with the day the employer first deposited
funds into his Simple-IRA, and the rollover account is not another
Simple-IRA, then the distribution is taxable and there is an early
withdrawal penalty of 25%.
I did understand that. I'm sorry I didn't spell out the penalty.
Regardless of why, I was trying to form the question around the preferred
behavior, which is to not distribute from a Simple IRA to a Roth IRA within
two years of first contribution to the Simple IRA.

I believe the two year period is measured from the start point to the day
of distribution. As long as two years elapse before the distribution that
ultimately winds up in some account other than a Simple-IRA, the penalty
would be avoided.
So, again, in the case I laid out, the two years expires with just two days
left in 2010. How mechanically can that transfer be done in order to both
occur within 2010 and also not impose the distribution penalty by occurring
too soon within 2010?
 
A

Alan

I did understand that. I'm sorry I didn't spell out the penalty.
Regardless of why, I was trying to form the question around the preferred
behavior, which is to not distribute from a Simple IRA to a Roth IRA within
two years of first contribution to the Simple IRA.



So, again, in the case I laid out, the two years expires with just two days
left in 2010. How mechanically can that transfer be done in order to both
occur within 2010 and also not impose the distribution penalty by occurring
too soon within 2010?
Use the same trustee. The same trustee should be able to make
that happen if the Roth is already setup to receive the transfer.
I have not looked at the calendar to see if those days are
business days.
 
H

hr(bob) hofmann

I did understand that.   I'm sorry I didn't spell out the penalty.
Regardless of why, I was trying to form the question around the preferred
behavior, which is to not distribute from a Simple IRA to a Roth IRA within
two years of first contribution to the Simple IRA.


So, again, in the case I laid out, the two years expires with just two days
left in 2010.   How mechanically can that transfer be done in order to both
occur within 2010 and also not impose the distribution penalty by occurring
too soon within 2010?

--
W

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You have to live at the locations where the money is coming from and
going to, and hopw that the two-day interval does not occur on a
weekend, and that the brokerage house/holding company can do the
transfer is 2 days. Rather small chance of that happening in my
experiences with conversions. Maybe possible if conversions done to/
from in the same company/brokerage.
 
W

W

Alan said:
Use the same trustee. The same trustee should be able to make that happen
if the Roth is already setup to receive the transfer. I have not looked at
the calendar to see if those days are business days.
It's a long story, but the trustee is a huge company with a special division
that handles retirement plans through payroll services and a separate retail
division. The Roth would need to live on the retail side, and the retail
and institutional sides of the business don't talk to each other and don't
like each other, and they don't play well together. :)

So the bottom line is we need to move Employee X's money to a different
broker, and figuring out the logistics of how to do this in a limited window
is going to take advance planning.
 
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W

W

hr(bob) [email protected] said:
You have to live at the locations where the money is coming from and
going to, and hopw that the two-day interval does not occur on a
weekend, and that the brokerage house/holding company can do the
transfer is 2 days. Rather small chance of that happening in my
experiences with conversions. Maybe possible if conversions done to/
from in the same company/brokerage.
So you are imagining that the Simple IRA Broker will cut a check with a
12/30 check date and deliver it to Employee X on 12/30, and then Employee X
will walk it over to the Broker that handles the new Roth IRA and deposit it
directly on 12/30?

Is there some restriction on Employee X not having a check made out to its
name? I thought that there was normally a transfer process here where one
back transfers directly to another, to avoid any possible constructive
receipt of funds by Employee X, and the inference that there was a
distribution from the IRA?
 
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A

Alan

hr(bob) [email][email protected] said:
On 3/30/10 10:02 PM, W wrote:
IRS Publication 560 2009 on page 2 says that a Simple IRA can be
rolled
over
to become a Roth IRA in 2010. IRS Publication 590 2009 page 71
contains
the statement "However, you cannot convert any amount distributed from
the
SIMPLE IRA during the 2-year period beginning on the date you first
participated in any SIMPLE IRA plan maintained by your employer."

Employee X first participates in the Simple IRA plan on 12/30/2008
with
final participation on 12/31/2009, and no participation in 2010.

Question 1: Can Employee X convert the entire Simple IRA contributions
made
starting from 12/30/2008 on 12/30/2010?

Question 2: Is Employee X restricted from converting this Simple IRA
plan
on any day in 2010 prior to 12/30/2010?

Assuming the answer to question 1 is yes, then tactically how can this
be
done in a limited two day window? I suppose the Roth IRA can be
You have to live at the locations where the money is coming from and
going to, and hopw that the two-day interval does not occur on a
weekend, and that the brokerage house/holding company can do the
transfer is 2 days. Rather small chance of that happening in my
experiences with conversions. Maybe possible if conversions done to/
from in the same company/brokerage.
So you are imagining that the Simple IRA Broker will cut a check with a
12/30 check date and deliver it to Employee X on 12/30, and then Employee X
will walk it over to the Broker that handles the new Roth IRA and deposit it
directly on 12/30?

Is there some restriction on Employee X not having a check made out to its
name? I thought that there was normally a transfer process here where one
back transfers directly to another, to avoid any possible constructive
receipt of funds by Employee X, and the inference that there was a
distribution from the IRA?
I see no restriction in the law on how conversions take place.
You can go trustee to trustee; same trustee; trustee to
individual to trustee within 60 days (or in your case.... 2 days).
 

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