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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121335  
Subject: Re: 72t withdrawals Date: 10/1/1997 10:37 AM
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<<I have finally caught up and read all 445 messages since become Foolishly intelligent. >>

Yo!! Z-Bar!!! Thanks for taking the time to catch up. If your screens are as slow as mine, it would have taken about three weeks. :-)

<<Here's my situation: I am 42 with a sizable self-directed IRA that was created from a 401K rollover and regular IRA contributions (mostly deductible). In 1997 I started with section 72t withdrawals-substantially equal payments- that must continue until I'm 59 1/2.>>

Right. You can't switch over until age 59 1/2 OR until 5 years have elapsed...whichever is longer. Since you are only 42 now, you'll have to wait until 59 1/2.

<< I still want to contribute $2000 annually while I am still working. Rolling over the IRA to a Roth IRA is out of the question because the amount is quite large and even if spread over 4 years would put my AGI over 100K.>>

Remember a few things...
First, it appears that the "rollover" amount will not be counted toward the $100k limit when determining if you qualify for the rollover or not. Therefore, at least it appears, somebody with a $95k "normal" income could roll over a $1 million regular IRA to a Roth IRA (assuming that they wanted to pay the tax...but they would be available to make the rollover). And don't also forget that while 1998 rollovers get special four year tax treatments, there are no rules (that I can find) that would prohibit annual Roth IRA rollovers of a smaller portion of your IRA every year into the future. Of course you would not receive the preferred "4 year" tax payment program for any rollovers taken after 1998, but you could still make the rollover. In fact, there is no reason that I know of that you couldn't take your annual 72t withdrawal from your normal IRA, and roll it directly into a Roth IRA.

<< I want to contribute the $2000 to a Roth IRA. When I calculate my 72t withdrawals in subsequent years will I use my regular IRA balance, or the sum of my regular IRA plus the Roth IRA?>>

Just the regular IRA, Z. Because of the "tax free" issues attached to the Roth IRA, there are NO minimum distribution requirements for the Roth. If you so desire, you NEVER have to take a distribution from your Roth IRA, and Uncle Sammy won't make you.

<<Any other issues I should consider.>>

If you have run all of the numbers, and feel that the Roth IRA is right for you, you might consider making annual "smaller" rollovers (perhaps out of your 72t minimum distributions) in addition to your $2k annual contribution. Obviously the numbers have to work out for you, but in your situation, you really have a number of options.

Hope this helps...
TMF Taxes
Roy
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