IRA Rules

Archive for May, 2010

Question: When must I take my first minimum required distribution?

On September 8, 2008, I will be 70.5 years old. I hear when you reach 70.5 you MUST start taking a minimum amount from a traditional IRA.

My wife is 21 years younger than me, does that mean my MRD will be lower? Our Joint Life Expectancy is 35.9.

When can take my MRD and not be penalized. I read somewhere the penalty can be up to 50% of the MRD?
For example, if I have a $20,000 traditional IRA and our “Joint Life Expectancy” is 35.9 I will have to withdraw $20,000/35.9 = $557. Is this correct? Please advise if I’m using the right numbers.

Answer: You must take your 2008 RMD by 4/1/09 but then you’ll have to take 2009′s RMD by 12/31/09, putting two years’ RMDs in one year. Therefore, it is often advantageous to go ahead and take your 2008 RMD by the end of this year. In fact, it may be wise to do so soon as the companies get so many demands in the last couple of months that things can get messed up and/or delayed.

If will be advantageous to elect the joint provision, which you are already aware of.

You are correct that the penalty for failing to meet the RMD is 50%.

Stocks, Mutual Funds & Retirement Investments : IRA Required Minimum Distribution

Question: Can I convert my SEP IRA to a Roth IRA?

I contributed the $5000 maximum to my Roth IRA last year (2008). I also contributed an additional $2250 to a SEP IRA the same year. Can I convert the SEP to a Roth under the new 2010 rule? So, in effect I would have $7250 total in the Roth for that year. If so, can I do it now in 2009 or do I have to wait until Jan 1. 2010?

Answer: According to IRS publication 590, you can roll a SEP IRA to a ROTH, paying the taxes, but no penalty. The rollover doesn’t count as a contribution, so the fact that you also contributed $5000 doesn’t matter.

I believe the issue is the amount of your income. For 2009, it has to be less than $100K. For 2010, there isn’t an income limit. You cannot use the 2010 rules until 1/1/2010.

Should You Convert to a Roth IRA in 2010? – Morningstar Video

Peter Newman, Scott Borden, Michael Lee: Economics 2009