Rolling Over Simple IRA to Roth IRA in 2010

IRS Publication 560 2009 on page 2 says that a Simple IRA can be rolled over to become a Roth IRA in 2010. IRS Publication 590 2009 page 71 contains the statement "However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer."

Employee X first participates in the Simple IRA plan on 12/30/2008 with final participation on 12/31/2009, and no participation in 2010.

Question 1: Can Employee X convert the entire Simple IRA contributions made starting from 12/30/2008 on 12/30/2010?

Question 2: Is Employee X restricted from converting this Simple IRA plan on any day in 2010 prior to 12/30/2010?

Assuming the answer to question 1 is yes, then tactically how can this be done in a limited two day window? I suppose the Roth IRA can be created without a contribution at some early point in 2010, which gives some target account into which the conversion funds will be placed. But is there some specific form number that the broker must then file, whose exact date must say 12/30/2010? Or is the requirement that the actual funds be deposited on 12/30/2010?

Reply to
W
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I think you are misinterpreting the law. The employee can roll over his Simple IRA any time he wants. If he happens to do it withing the two year statutory period that starts with the day the employer first deposited funds into his Simple-IRA, and the rollover account is not another Simple-IRA, then the distribution is taxable and there is an early withdrawal penalty of 25%.

I believe the two year period is measured from the start point to the day of distribution. As long as two years elapse before the distribution that ultimately winds up in some account other than a Simple-IRA, the penalty would be avoided.

Reply to
Alan

I did understand that. I'm sorry I didn't spell out the penalty. Regardless of why, I was trying to form the question around the preferred behavior, which is to not distribute from a Simple IRA to a Roth IRA within two years of first contribution to the Simple IRA.

So, again, in the case I laid out, the two years expires with just two days left in 2010. How mechanically can that transfer be done in order to both occur within 2010 and also not impose the distribution penalty by occurring too soon within 2010?

Reply to
W

Use the same trustee. The same trustee should be able to make that happen if the Roth is already setup to receive the transfer. I have not looked at the calendar to see if those days are business days.

Reply to
Alan

text -

You have to live at the locations where the money is coming from and going to, and hopw that the two-day interval does not occur on a weekend, and that the brokerage house/holding company can do the transfer is 2 days. Rather small chance of that happening in my experiences with conversions. Maybe possible if conversions done to/ from in the same company/brokerage.

Reply to
hrhofmann

It's a long story, but the trustee is a huge company with a special division that handles retirement plans through payroll services and a separate retail division. The Roth would need to live on the retail side, and the retail and institutional sides of the business don't talk to each other and don't like each other, and they don't play well together. :)

So the bottom line is we need to move Employee X's money to a different broker, and figuring out the logistics of how to do this in a limited window is going to take advance planning.

Reply to
W

So you are imagining that the Simple IRA Broker will cut a check with a

12/30 check date and deliver it to Employee X on 12/30, and then Employee X will walk it over to the Broker that handles the new Roth IRA and deposit it directly on 12/30?

Is there some restriction on Employee X not having a check made out to its name? I thought that there was normally a transfer process here where one back transfers directly to another, to avoid any possible constructive receipt of funds by Employee X, and the inference that there was a distribution from the IRA?

Reply to
W

I see no restriction in the law on how conversions take place. You can go trustee to trustee; same trustee; trustee to individual to trustee within 60 days (or in your case.... 2 days).

Reply to
Alan

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