Rollover spouse to spouse?

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8hygro
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Joined: Sun Dec 25, 2016 9:15 am

Rollover spouse to spouse?

Post by 8hygro » Sat Jan 20, 2018 11:46 am

My wife has a small defined pension plan from years ago that has since been annuitized. It appears at 55 the plan can be rolled over, it specifically mentions into an IRA. She has not worked in the last couple years and has no other retirement accounts to perform a rollover. My job provides our only 401k. I also fund annual backdoor Roth's for both of us as my income exceeds the standard Roth limits. My plan does accept rollovers. Are we able to roll her defined pension plan into my 401k, or her existing Roth? TIA

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Nestegg_User
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Joined: Wed Aug 05, 2009 1:26 pm

Re: Rollover spouse to spouse?

Post by Nestegg_User » Sat Jan 20, 2018 12:22 pm

you do remember that they are calling “individual “ retirement accounts?

short answer: NO



(there’s older threads that will remind you that as well)

Alan S.
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Location: Prescott, AZ

Re: Rollover spouse to spouse?

Post by Alan S. » Sat Jan 20, 2018 12:30 pm

If the plan administrator indicates that any cash out in lieu of future annuity payments is eligible for rollover, it most likely is. That said, the present value calculation used to determine the lump sum could be punitive and include certain fees. Such a calculation should include the value of any spousal survivor benefits included presently.

If acceptable she could roll the lump sum over to her own TIRA or own Roth IRA (taxable rollover), but NOT to any of your accounts. If rolled over to her TIRA, it would make her back door Roth conversions partially, likely mostly taxable.

Say the calculation is 20,000. If she rolls it to a Roth, you have immediate taxable income of 20,000.
But if she rolls it to a TIRA, makes a 5500 non deductible spousal contribution to her TIRA, she could convert a portion of the 25,500 each year for (2,3,4 etc) years to reduce the taxable amount to a lower acceptable annual amount. Form 8606 would calculate the taxable amount of each year's conversion, and the remaining basis. Your choice whether to convert the entire balance, or convert over a couple years. Of course, the value of any lump sum would be key.

8hygro
Posts: 32
Joined: Sun Dec 25, 2016 9:15 am

Re: Rollover spouse to spouse?

Post by 8hygro » Sun Jan 21, 2018 10:53 am

Thanks for the input...In our case, we have already fully funded her Roth for 2018. My understanding is that precludes one from also funding a same year TIRA, so the distribution would have to wait until 2019, correct? Then the backdoor Roth conversions could happen the following years. The distribution value is under 40k. TIA

ralph124cf
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Re: Rollover spouse to spouse?

Post by ralph124cf » Sun Jan 21, 2018 11:28 am

A rollover to a tIRA is not the same as funding a tIRA. If rolled over, this is not a taxable event. Withdrawals from the tIRA or conversions from the tIRA to ROTH are taxable events.

Ralph

8hygro
Posts: 32
Joined: Sun Dec 25, 2016 9:15 am

Re: Rollover spouse to spouse?

Post by 8hygro » Sun Jan 21, 2018 2:37 pm

Thank you Ralph...can I have a rolled over IRA and still continue funding/performing backdoor Roths?

daveydoo
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Re: Rollover spouse to spouse?

Post by daveydoo » Sun Jan 21, 2018 2:40 pm

oh this was not at all what I thought from the title. Nvm.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

lakpr
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Re: Rollover spouse to spouse?

Post by lakpr » Mon Jan 22, 2018 6:08 pm

daveydoo wrote:
Sun Jan 21, 2018 2:40 pm
oh this was not at all what I thought from the title. Nvm.


:D

Post of the day!!

lakpr
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Re: Rollover spouse to spouse?

Post by lakpr » Mon Jan 22, 2018 6:19 pm

8hygro wrote:
Sun Jan 21, 2018 2:37 pm
Thank you Ralph...can I have a rolled over IRA and still continue funding/performing backdoor Roths?
8hygro,

Yes but it serves little purpose. I advise you to take a Form8606 and practice filling it out.

When there is a traditional IRA balance as of December 31 in a given tax year, and you funded traditional IRA with basis and convert that to Roth, your conversion is deemed to be a conversion of proportional share of the gains and a proportional share of the basis principal. You can see that even a gain in the traditional IRA account essentially works against you when you do the calculations.

This is why it is critical to have zero balances in any IRA, including roll over IRAs by Dec 31.

You indicated that you have done Roth IRA conversion already this year. Unless you like wrestling with tax forms for years to carry over the basis, you should not roll this pension into traditional IRA at all before Dec 31, 2018

8hygro
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Joined: Sun Dec 25, 2016 9:15 am

Re: Rollover spouse to spouse?

Post by 8hygro » Mon Jan 22, 2018 8:57 pm

lakpr, thanks for the additional information. I certainly would prefer to keep things simple given a choice. I am starting to rationalize just taking the tax hit and converting to income, then re-invest.

Slightly embarrassed, as my better half was also amused at the title. I had finances on the mind, entirely.

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