IRA Converstion to Roth in 2010

[thetaxman2200]

I have a client who in 2010 converted 344,000 of IRA to Roth and elected to pay taxes in 2011 and 2012. This I understand. However they have taken a $69,000 withdraw in 2011 from the Roth they opened. This client is 85 years old. I received the 1099 with box 7 with a T code. I am assuming since he is over the age of 59.5 this should not be taxable correct? PA or Fed should not be taxing this income this correct too?

Thanks

[Lion]

Over 59.5 is an exclusion for the 10% early w/d penalty only. He still owes tax on half his 2010 conversion AND speeds up his reporting by the $69,000 withdrawal also.

[WhiteOleander]

Read page 60 in Pub 590 "Distributions from Roth IRAs".

[thetaxman2200]

What about the State of Pennsylvania - is this would not be taxable correct? He is over the age of retirement.

[Roberts]

Why on earth would an 85 year old person voluntarily take a large conversion like that and pay the taxes? I've never seen a situation where I'd consider this a good idea.

[RitaB]

Broker

Why on earth would an 85 year old person voluntarily take a large conversion like that and pay the taxes? I've never seen a situation where I'd consider this a good idea.

Broker of the year. (You get broker by dealing with them).

Or, Gramps was writing a book: "What Not to do With an IRA".

All I can come up with. SMH (scratching my head) as well.

[Roberts]

Broker of the year. (You get broker by dealing with them).

Or, Gramps was writing a book: "What Not to do With an IRA".

All I can come up with. SMH (scratching my head) as well.

I'm a broker so BACK OFF!!

I had a first year tax client who dealt with another broker and did this same move last year. 65 years old, had only $150k in her IRA and it was her only retirement asset except the house. The broker moved it all into a Roth to utilize the 2-year rollover. When I showed them she was basically paying $0 in taxes on her expected withdrawals and now would be paying 20%, the broker blamed me for not understanding the benefits of such an amazing financial maneuver.

I bet ya if you looked at the client's 1040 this year, the second half of the income recognition didn't make it onto the return.

[JohnH]

Was the desired result more about the conversion or more about getting the client to think about the money differently? I think the transaction would come full circle if we happened to learn that the broker convinced the client to put the converted money into a Limited Partnership. That would make a lot of sense, because with an 85-year-old client the commisison stream is getting closer to drying up.

Or, as the broker said to his new client after analyzing his assets:
"I have wonderful news! Looks like there's plenty here for both of us."

[RitaB]

But you are the real thing

I'm a broker so BACK OFF!!

I thought about that right after I posted. LOL.

[DaveO]

I had a client who is a minister convert about $150k into an annuity inside a ROTH IRA. The only other retirement income besides SS he will have is his church pension which can be 100% designated as housing allowance which would have allowed his RMD to be mostly tax free. Not as good a commission as the MLP but close.

[Roberts]

I had a client who is a minister convert about $150k into an annuity inside a ROTH IRA. The only other retirement income besides SS he will have is his church pension which can be 100% designated as housing allowance which would have allowed his RMD to be mostly tax free. Not as good a commission as the MLP but close.

MLPs have good commissions? These days most of them are publicly traded and you can only get the standard commission.

I haven't seen a high commission limited partnership deal in many years.

[JoshinNC]

Roberts

To some of the folks on here any commission is a high commission. Just sayin'.

[RitaB]

Sorry, Guys

To some of the folks on here any commission is a high commission. Just sayin'.

I apologize for my joke.

I know you two know your stuff. It's the people charging 85-year-olds to convert Traditional IRA's to ROTH's (congratulations, your earnings for the next 23 seconds are tax free!), and making 47,000 sells a year who are ripping people off. Not you. Can you find it in your heart to forgive me?

[Roberts]

I apologize for my joke.

I know you two know your stuff. It's the people charging 85-year-olds to convert Traditional IRA's to ROTH's (congratulations, your earnings for the next 23 seconds are tax free!), and making 47,000 sells a year who are ripping people off. Not you. Can you find it in your heart to forgive me?

We are just teasing you.

Limited Partnerships used to have MASSIVE commission rates and that's why people sold them. I haven't seen one of those in well over 10 years I'm guessing. I haven't had a tax client who owned one. MLPs we have today aren't the same beast, they trade on the stock exchange and you get a normal trade commission just like buying Exxon.

The single biggest commission product now are variable annuities. If they reduced the commission rate by 50%, the market would basically disappear.

[JohnH]

This sort of takes us back to my question on another string. It still puzzles me to see financial advisors getting clients to buy these orphan Limited Partnerships, usually in $5,000 amounts. If they don't even get a nice commission, what's the point? Apparently my level of financial sophistication is severely lacking.