General
Distributions
Loans
Investments
2010 Rollovers and Conversions to a Roth IRA
Have a Question?
General
- Can I contribute to a traditional IRA or Roth IRA if I'm covered by a retirement plan at work?
- How can an individual convert a traditional IRA to a Roth IRA?
Can I contribute to a traditional or Roth IRA if I’m covered by a retirement plan at work?
Traditional IRAs
Yes, you can contribute to a traditional IRA even if you participate in an employer-sponsored retirement plan. For 2011 and 2012, you can contribute up to $5,000 annually ($6,000 if you are 50 or older by the end of the year). However, if you or your spouse is covered by an employer retirement plan, this will affect how much, if any, of your contribution is tax-deductible. See Publication 590, Individual Retirement Arrangements (IRAs), for the rules on who can contribute, what compensation to use, and when and how to make IRA contributions.
Roth IRAs
You can also contribute to a Roth IRA even if you participate in an employer-sponsored retirement plan. You can contribute up to $5,000 ($6,000 if you are 50 or older by the end of the year), but the amount you can contribute may be reduced or even eliminated depending on your modified adjusted gross income (MAGI) and your filing status. For example, for 2011, you can make the maximum contribution to a Roth IRA if your filing status is married filing jointly and your MAGI is under $169,000, assuming you have at least $5,000 ($6,000) in earned income for the year. If your MAGI is between $169,000 to $179,000, your maximum Roth contribution for 2011 is reduced. The phase-out occurs between $173,000 and $183,000 for 2012. You cannot make a Roth IRA contribution for 2011 if your MAGI is $179,000 or more ($183,000 for 2012). See Pub. 590 for all the MAGI limits.
Contributing to both traditional and Roth IRAs
There is no limit on the number of Roth IRAs and traditional IRAs you can own; however, your combined annual contributions to all of them cannot exceed the maximum annual contribution limit ($5,000; $6,000 if 50 or older).
If you are in a SEP or SIMPLE IRA plan
The rules above also apply if you’re covered by a SEP or SIMPLE IRA plan at work. A Roth IRA cannot be used to hold contributions made under these plans, but in most cases you can make a regular traditional IRA contribution ($5,000/$6,000) to your SEP IRA.
How can an individual convert a traditional IRA to a Roth IRA?
A traditional IRA can be converted to a Roth IRA by:
Rollover - A distribution from a traditional IRA can be contributed to a Roth IRA within 60 days after distribution.
Trustee-to-trustee transfer - The financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA with another financial institution.
Same trustee transfer - As with the trustee-to-trustee transfer, the financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA. In this case, things should be simpler because the transfer occurs within the same financial institution.
A conversion results in taxation of any untaxed amounts in the traditional IRA. Also, the conversion is reported on Form 8606, Nondeductible IRAs.
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Distributions
- Can an IRA be rolled over into a qualified retirement plan?
- Can an IRA accept rollovers from a qualified retirement plan?
- Can I get an in-service distributions allowed from my SEP, SARSEP or SIMPLE IRA plan?
- Can I get a hardship distribution from my IRA-based plan?
- I am over age 70 1/2. Must I receive a required minimum distribution if I am still working? Is the answer different if I am the owner of the company?
- How much must I take out of my IRA at age 70 1/2?
- If I cash in my IRA before I am age 59 1/2, which forms do I need to fill out?
- Can I deduct the 10% additional early withdrawal tax in the adjusted gross income section of my income tax return as a penalty on early withdrawal of savings?
- Do I request the distribution check directly from my employer or from the financial institution where the IRA-based plan is invested?
- What is a qualified charitable distribution from an IRA?
- What are the deadlines for making 2010 and 2011 qualified charitable distributions?
- Can a qualified charitable distribution satisfy any required minimum distributions (RMDs) I must take?
- If I already received a required minimum distribution (RMD) for 2010 or 2011, can I still treat that as a qualified charitable distribution?
- How does a 2010 qualified charitable distribution made in January 2011 affect my 2011 required minimum distribution?
- How are 2010 and 2011 qualified charitable distributions reported on Form 1099-R?
- How do I elect to treat a qualified charitable distribution made in January 2011 as a 2010 QCD?
- How do I report a 2010 qualified charitable distribution made in January 2011 on my tax return?
Can an IRA be rolled over into a qualified retirement plan?
An IRA can be rolled over into a qualified retirement plan (for example, 401(k), profit-sharing, and so on), assuming the qualified retirement plan has language permitting such rollovers.
Can an IRA accept rollovers from a qualified retirement plans?
Provided the IRA document permits rollovers, almost any type of plan distribution can be rolled over into it.
Can I get an in-service distributions allowed from my SEP, SARSEP or SIMPLE IRA plan?
There are no prohibitions on distributions from IRA-based plans. A participant can take distributions at any time. However, in addition to the distribution being taxable, it may be subject to a 10% additional tax if the participant has not reached age 59 1/2. If the distribution is taken in the first 2 years of participation in a SIMPLE IRA plan, the additional tax is increased to 25%.
Can I get a hardship distribution from my IRA-based plan?
As in-service distributions are allowed, so are "hardship" distributions, subject to the same conditions.
I am over age 70 1/2. Must I receive a required minimum distribution if I am still working? Is the answer different if I am the owner of the company?
Both the owner and any employees over age 70 1/2 must take required minimum distributions. Unlike qualified plans (e.g., 401(k), profit-sharing, etc.), there is no exception for non-owners who have not retired.
How much must I take out my IRA at age 70 1/2?
Required minimum distributions apply each year beginning with the year the account owner turns age 70 1/2. The required minimum distribution for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. An account owner can determine his or her applicable distribution period or life expectancy by using the Tables in Appendix C of Publication 590. Table I is used by beneficiaries. Table II is for use by owners who have spouses who are both the IRA's sole beneficiary and who are more than 10 years younger than the owner. Table III is for use by all other owners.
If I cash in my IRA before I am age 59 1/2, which forms do I need to fill out?
Regardless of age, the IRA owner will need to file a Form 1040 and show the amount of withdrawal from the IRA. Since the withdrawal was taken before reaching age 59 1/2, unless certain exceptions listed in Publication 590 Individual Retirement Arrangements (IRAs) are met, the IRA owner will need to pay an additional 10 percent tax on early distributions from qualified retirement plans that is reported on Form 1040. A Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, may need to be completed and attached to the tax return.
References:
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Tax Topic 557, Tax on Early Distributions From Traditional and Roth IRAs.
Can I deduct the 10% additional early withdrawal tax in the adjusted gross income section of my income tax return as a penalty on early withdrawal of savings?
No, the additional 10% tax on early distributions from qualified retirement plans does not qualify as a penalty for withdrawal of savings.
References:
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Tax Topic 557, Tax on Early Distributions From Traditional and Roth IRAs.
Do I request the distribution check directly from my employer or from the financial institution where the IRA-based plan is invested?
The participant will need to contact the financial institution holding the IRA assets. After the employer sends the IRA plan contributions to the financial institution, that institution will have control over the funds.
What is a qualified charitable distribution from an IRA?
A qualified charitable distribution is a charitable gift:
An individual does not include the amount of the qualified charitable distribution, up to $100,000, in gross income for the year for which it is made.
What are the deadlines for making 2010 and 2011 qualified charitable distributions?
The deadline for making a 2010 qualified charitable distribution is January 31, 2011. The deadline for making a 2011 qualified charitable distribution is December 31, 2011.
Can a qualified charitable distribution satisfy any required minimum distributions (RMDs) I must take?
Yes, your qualified charitable distributions can satisfy the amount that you must take as an RMD for 2010 or 2011. A 2010 qualified charitable distribution made by January 31, 2011, may satisfy all or part of your 2010 RMD. A 2011 qualified charitable distribution made by December 31, 2011, may satisfy all or part of your 2011 RMD. For example, if your 2011 RMD is $10,000, and you make a $5,000 qualified charitable distribution for 2011, you have only satisfied $5,000 of your RMD and must still take a $5,000 RMD for 2011.
If I already received a required minimum distribution (RMD) for 2010 or 2011, can I still treat that as a qualified charitable distribution?
No. To qualify as a qualified charitable distribution, the IRA trustee must make the distribution directly to the qualified charity. Any distributions, including any RMDs that you actually receive cannot qualify as qualified charitable distributions.
You may not redeposit your 2010 or 2011 RMDs to an IRA to have them redistributed directly to a qualified charity as a qualified charitable distribution. However, if you received a distribution in excess of your 2010 RMD, you can roll the excess to another or the same IRA within 60 days of receiving the distribution and then have the funds paid directly to the qualified charity as a qualified charitable distribution.
How does a 2010 qualified charitable distribution made in January 2011 affect my 2011 RMD?
Determine the amount of your 2011 RMD by subtracting the full amount of the 2010 qualified charitable distribution made in January 2011 from your December 31, 2010, IRA account balance.
How are 2010 and 2011 qualified charitable distributions reported on Form 1099-R?
Any distributions from an IRA in 2010, including any 2010 qualified charitable distributions made on or before December 31, 2010, are reported on a 2010 Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Any distributions from an IRA in 2011, including any 2010 qualified charitable distributions made on or before January 31, 2011, should be reported on the 2011 Form 1099-R.
How do I elect to treat a qualified charitable distribution made in January 2011 as a 2010 QCD?
Elect to treat a qualified charitable distribution made by January 31, 2011, as having been made for 2010 by including the QCD on your 2010 income tax return.
How do I report a 2010 qualified charitable distribution made in January 2011 on my tax return?
Report a 2010 qualified charitable distribution made in January 2011 on your 2010 Form 1040 by:
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including the full amount of the qualified charitable distribution (even if in excess of $100,000) made in January 2011 on line 15a; and
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not including any amount on line 15b, but writing “QCD” next to line 15b.
You may also have to file Form 8606, Nondeductible IRAs, with your 2010 tax return if you:
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made the QCD from a traditional IRA, in which you had basis, and
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received a distribution from the IRA in 2010, other than the January 2011 QCD.
If you must file a Form 8606 for 2010, you must reduce the value of all IRAs reported on Form 8606, line 6, by any 2010 QCD made by January 31, 2011.
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Loans
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Can the outstanding loan balance from a retirement plan be rolled over into an IRA and the loan payments made to the IRA instead of the other plan?
IRAs (including SEP-IRAs) do not permit loans. Therefore, repaying a loan balance from one plan by transferring the loan balance and making loan payments to an IRA is not allowed. If this transaction was attempted, the loan would be treated as a distribution at the time of the attempted rollover.
The bank refuses to give a loan from an IRA-based plan - isn't it required to allow loans?
IRAs are the investment vehicles for IRA-based plans. As discussed in the above Q&A, IRAs do not permit loans. So banks aren't allowed to give loans from an IRA.
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Investments
- Are there any restrictions on the things in which I can invest my IRA?
- Are the basic investment rules different for SEPs and SIMPLE IRA plans?
- Can I deduct losses in an IRA on my income tax return?
Are there any restrictions on the things in which I can invest my IRA?
The law does not permit IRA funds to be invested in collectibles.
If an IRA invests in collectibles, the amount invested is considered distributed in the year invested. The account owner may have to pay a 10% additional tax on early distributions.
Here are some examples of collectibles:
- Artwork,
- Rugs,
- Antiques,
- Metals - there are exceptions for certain kinds of bullion,
- Gems,
- Stamps,
- Coins - there are exceptions for certain coins minted by the U.S. Treasury,
- Alcoholic beverages, and
- Certain other tangible personal property.
Check Publication 590, Individual Retirement Arrangements (IRAs), for more information on collectibles.
Finally, IRA trustees are permitted to impose additional restrictions on investments. For example, because of administrative burdens, many IRA trustees do not permit IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.
Are the basic investment rules different for SEPs and SIMPLE IRA plans?
The basic investment vehicle for each of these plans is an IRA, and the investment restrictions apply equally to all types of IRAs.
Can I deduct losses in an IRA on my income tax return?
No - Neither IRA losses nor IRA gains are taken into account on a participant’s tax return while the IRA is on-going.
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2010 Rollovers and Conversions to a Roth IRA
- What was the deadline for electing to include the taxable portion of my 2010 rollover or conversion to a Roth IRA in 2010, instead of half in 2011 and half in 2012?
- If I chose to report my 2010 rollover or conversion to a Roth IRA half in 2011 and half in 2012, did I have to report any amounts rolled over or converted in 2010?
- What is a recharacterization of a rollover or a conversion to a Roth IRA?
- What was the deadline to recharacterize a 2010 rollover or conversion to a Roth IRA?
- How can I recharacterize an amount rolled over to a Roth IRA from an employer-sponsored retirement plan?
- If I included the taxable amount of my 2010 rollover or conversion on my 2010 tax return, but later recharacterized that rollover or conversion, what should I do?
- Is there a minimum waiting period to reconvert the money to a Roth IRA following a recharacterization?
- How are 2010 rollovers or conversions to a Roth IRA reported on a 2010 Form 1099-R?
- Do I have to report my 2010 rollovers and conversions to a Roth IRA on my 2011 tax return?
- How do I report my 2010 rollovers and conversions to a Roth IRA on my 2011 tax return?
What was the deadline for electing to include the taxable portion of my 2010 rollover or conversion to a Roth IRA in 2010, instead of half in 2011 and half in 2012?
The default method for reporting rollovers or conversions to a Roth IRA in 2010 is reporting half of the taxable amount in your gross income in 2011 and half in 2012. However, you could have elected to include the entire amount in your 2010 gross income on your 2010 tax return. You cannot change your election after the due date for your 2010 tax return.
If I chose to report my 2010 rollover or conversion to a Roth IRA half in 2011 and half in 2012, did I have to report any amounts rolled over or converted in 2010?
No. However, if you had tax withheld from amounts rolled over or converted to a Roth IRA in 2010 and did not make up this amount in your deposit to the Roth IRA, the withheld amounts are considered a distribution to you in 2010. You must include any previously untaxed amounts “distributed” to you in your 2010 gross income. You may also be liable for the 10% early distribution tax unless some exception applies (note: exceptions to the 10% early distribution tax are different depending on whether the distribution is from a retirement plan or an IRA).
What is a recharacterization of a rollover or a conversion to a Roth IRA?
This is when you do a trustee-to-trustee transfer of amounts you previously rolled over or converted to the Roth IRA into a traditional IRA.
What was the deadline to recharacterize a 2010 rollover or conversion to a Roth IRA?
You had until October 17, 2011 (because October 15, 2011, was a Saturday), to recharacterize your 2010 rollover or conversion to a Roth IRA if you filed your 2010 tax return on time, including extensions, and regardless of whether you requested an extension to file your 2010 tax return. For example, even if you did not request an extension to file your 2010 tax return and actually filed your return on or before April 18, 2011 (because April 15 was a holiday in the District of Columbia), you had until October 17, 2011, to recharacterize your 2010 Roth IRA rollover or conversion.
How can I recharacterize an amount rolled over to a Roth IRA from an employer-sponsored retirement plan?
You can only recharacterize amounts rolled into a Roth IRA from an employer-sponsored retirement plan by transferring them to a new or existing traditional IRA, and not back into the plan from which they were distributed.
If I included the taxable amount of my 2010 rollover or conversion on my 2010 tax return, but later recharacterized that rollover or conversion, what should I do?
For a recharacterized rollover or conversion, you should amend your 2010 tax return to subtract the amount recharacterized from the taxable amount of the rollover or conversion you previously included in your 2010 gross income.
Is there a minimum waiting period to reconvert the money to a Roth IRA following a recharacterization?
Yes, if you elect to recharacterize all or part of a rollover or conversion to a Roth IRA, you cannot reconvert the amount recharacterized to the same or another Roth IRA until the later of:
However, this waiting period does not apply to amounts other than the ones you recharacterized. For example, you can convert amounts from a different traditional IRA to a Roth IRA immediately.
How are 2010 rollovers or conversions to a Roth IRA reported on a 2010 Form 1099-R?
Qualified plans and IRAs report a 2010 rollover, other than from a designated Roth account in a 401(k) or a 403(b) plan, to a Roth IRA on a 2010 Form 1099-R regardless of whether the recipient elects to include the taxable portion of the rollover in 2010, or half in 2011 and half in 2012. No Form 1099-R is required for 2011 or 2012 for rollovers or conversions to a Roth IRA in 2010.
Plans report a direct rollover from a non-designated Roth account to a Roth IRA by stating:
IRAs report:
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the amount of the conversion in boxes 1 and 2a;
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check “taxable amount not determined" in box 2b; and
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use code "2" or "7" in box 7, depending on the recipient’s age.
Do I have to report my 2010 rollovers and conversions to a Roth IRA on my 2011 tax return?
You must report half of the taxable amount of your 2010 rollovers and conversions on your 2011 income tax return unless you:
How do I report my 2010 rollovers and conversions to a Roth IRA on my 2011 tax return?
How you report your 2010 rollovers and conversion to a Roth IRA depends on whether you received a distribution of these amounts in 2010 or 2011.
No 2010 or 2011 Distributions
If no part of the 2010 conversion to a Roth IRA was distributed in 2010 or 2011, you must report the amount from line 20a of your 2010 Form 8606 on line:
If no part of your 2010 rollover to a Roth IRA (from a retirement plan other than an IRA) was distributed in 2010 or 2011, you must report the amount from line 25a of your 2010 Form 8606 on line:
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16b of your 2011 Form 1040,
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12b of your 2011 Form 1040A, or
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17b of your 2011 Form 1040NR.
2010 Distributions
On your 2010 tax return, you would have had to report distributions of your 2010 rollovers and conversion to a Roth IRA.
On your 2011 tax return, you must now report:
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on Form 1040, line 15b (Form 1040A, line 11b; or Form1040NR, line 16b) the smaller of the:
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amount from your 2010 Form 8606, line 20a, or
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remaining taxable amount of your 2010 conversions to a Roth IRA; and
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on Form 1040, line 16b (Form 1040A, line 12b; or Form 1040NR, line 17b) the smaller of the:
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amount from your 2010 Form 8606, line 25a, or
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remaining taxable amount of your 2010 rollovers to a Roth IRA
2011 Distributions
You may have to include in 2011 income all or some of the taxable amount of your 2010 rollovers and conversion to a Roth IRA that you would have otherwise included in 2012 income. To determine the amount to report in 2011, complete the 2011 Form 8606 Part III, for distributions from a Roth IRA (instructions).
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Have a Question?
If I have questions concerning IRAs, where do I go for help?
Technical and procedural questions concerning IRAs may be directed to our toll-free tax assistance line for individuals at (800) 829-1040.
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