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ROTH IRA FAQs

1. Can I rollover part of an IRA to a Roth? Yes Non deductible IRA to a Roth? Yes. There is no requirement that all of the IRA be rolled to the Roth. The taxpayer may roll as much as he or she can afford to pay tax on or as much as makes investment sense.

2. Can I contribute to a Roth and a Simple? Yes ...And a SEP? Yes ...Aud a KEOGH? Yes. There is no "active participant" limitation on the ability to contribute to a Roth IRA. The active participant rule applies to the deductible IRA contribution.

3. When must the 1998 Roth IRA be funded? Set up for 1998? Both are the due date of return without extension.

4. Can I roll a SEP-IRA to Roth IRA? Be safe and roll to a regular IRA first and then to a Roth IRA.

5. If I rollover to a Roth in early 1998 and then have a windfall later in the year which pushes my AGI above $100,000, is the rollover taxable? Proposed technical corrections will allow you to put back the money withdrawn (and the earnings) to a regular IRA without tax or penalty by the due date of return.

6. Can I take from Roth IRA for higher education expense without tax and penalty? Or is only the first time home buyer withdrawal penalty free? Both the first time homeowner withdrawal and higher education expense withdrawal art allowed without penalty from the regular, old non deductible and Roth IRAS. You can always withdraw your own money from the Roth IRA without tax or penalty. (There is an exception to the withdrawal of your own funds tax free if they are converted funds.)

7. May I take all of the income attributable to rolling an IRA to a Roth IRA into 1998 and forego the 4 year spread? No, you must use the 4 year spread until further instructions from IRS.

8. If I put $2,000 into Roth IRA in 1998 and 1999, can I take $4,000 out in the year 2000 tax and penalty free? Yes, you can take your own money out even if 5 years has not expired-except for rollover. Roll over (conversion from regular to Roth accounts) amounts must always stay in the Roth at least 5 years.

9. If I put $2,000 into my Roth IRA in 1999 for 1998, can I draw more than $2,000 without penalty in 2003? Yes, assuming the distribution otherwise qualifies, 5 years is counted from the year for which the first contribution is made. Since your contribution was made for 1998, the five years will have run in 2003.

10. If I started the minimum required distribution from my IRA at 70 'A, can I still rollover to a ROTH? The 1998 MRD is not eligible for rollover to the Roth IRA. A distribution qualifies for rollover treatment only if it is an "eligible rollover distribution." Thus, it generally has to be a nonperiodic distribution not required under the minimum distribution rules. Sec. 403(b)(8)(A). The balance in the account after the MRD is withdrawn is eligible for rollover to the Roth.

11. Taxpayer lived in California Iii 1998 and rolled over her regular IRA to a Roth IRA. The next year she moved to Ohio. In what state is the 1/4 of 1998 rollover taxed? California or Ohio? This will depend on state tax law but California has informally said that they will tax the part of the distribution taxable for the year of residency. Thus, when the client moves to Ohio, Ohio will receive the tax on the remaining part taxable under the 4 year spread rule.

12. I have both deductible and nondeductible IRA accounts. Can I roll over the nondeductible IRA to a Roth IRA, but leave the deductible IRA alone? You may roll over any amount. However, to calculate the tax on the rollover, all old IRAs will be added together. For example, Sam has a deductible IRA account with a value of $60,000 and a nondeductible IRA account with a value of $40,000. His tax basis in the deductible and nondeductible IRAs are $0 and $30,000, respectively. If he converts the $40,000 in his nondeductible IRA to a Roth IRA, he will have tax basis in the new Roth IRA of $12,000 ($30,000 tax basis/$100,000 value of all IRAs X $40,000 amount converted). Therefore, he will pay tax on $28,000 ($40,000 converted - $28,000 tax basis).

13. If I make my first contribution to a Roth IRA in 1999 for 1998, when does the 5 years start? 5 years is counted from the year in which the first contribution is made and not when the actual contribution is made.

14. Is the beneficiary of a Roth IRA taxed upon inheriting the account? No, an inherited Roth IRA is not subject to income tax. It is, however, subject to estate tax.

15. How long may a beneficiary of a Roth IRA keep the funds in the Roth IRA? A surviving spouse may roll the Roth IRA into his or her Roth IRA. A nonspouse beneficiary must take distribution (1) by the end of the year containing the 5th anniversary of the account owner's death, or (2) over the life expectancy of the designated beneficiary, starting no later than December 31 of the year following the year in which the account owner died. See new forms 5305-R and 5305-RA.

16. What is the maximum amount you can withdrawal penalty free per year from a Roth IRA account to pay for the cost of qualified higher education costs? There is no limit on the amount of the withdrawal for higher education expenses from an IRA-regular or Roth. The withdrawal must be used for actual education expenses including tuition, books and room & board where the student attends at least ½ time. However, remember to avoid the tax and penalty, the money must remain in the Roth IRA at least 5 years and be used for qualified higher education expenses.

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