ira conversion to roth

[Bucky]

Can a couple filing married filing separate do traditional irs to roth conversion. I know they are limited 0 -$10000 for contributions but I can't find anything that states they can't do conversions. Both are high income earners. Also have the no limit on income for roth conversions been extended through 2013?

[Matt Sova]

conversion

The income limit for conversions went away a few years ago.

[mastertaxguy]

Mfs-tradition ira to roth

Good question.

There is no prohibition on what the taxpayer(s) plan to do based on MFS filing status. The prior income limits on such actions have been eliminated starting in 2010. See IRS publication 590, pp. 31 and 66; and IRC Sec. 408A

Keep in mind that the conversion will trigger taxation on the value of the deductible traditional IRA amount including earnings. If it there was a non-deductible portion, the TP/you will have to figure out that basis aspect. If the taxpayer is on social security, the additional income from the traditional IRA may result in higher taxation of social security benefits, a medicare surcharge if applicable (for higher income taxpayers) and in any event, may cause the taxpayer to "graduate" to a higher tax bracket. Also, in some states, the conversion income is taxable and not subject to retirement income credits or subtractions. Normally there is no Sec. 72t early distribution penalty but there are some exceptions to that "normal" rule.

Someone wiser than I will chime in, I am sure, as to whether inherited traditional IRA's or "beneficiary" traditional IRA's can be converted without any penalty, but I haven't found a cite that would impose a penalty for such conversions as along as it is a complete conversion of all funds withdrawn or transfered from the traditional IRA to the new Roth IRA.

I would advise a client to do this trustee to trustee, and also advice that any withdrawal from the traditional IRA to pay expected income taxes would, of course, be subject to tax itself and possible a 72t penalty for early distributions if the under age 59 1/2 is an issue.

Depending on the size of the tradional IRA and taxpayer's other financial status, it may be worthwhile to consier trickling out the traditional IRA over a number of years to better handle the tax issues.

Remember RMD's cannot be converted to Roth IRA's at least.

Conversion amounts in a Roth IRA may be subject to an early distribution penalty from the Roth in certain cases when the conversion amounts are withdrawn within 5 years. TTB 13-4, right column, middle of page, and the regulation Q&A cited.