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Roth IRA Conversion Limits, Spousal Inherited IRAs Highlight Mailbag

This week's Slott Report Mailbag includes questions (and our answers) on the Roth IRA conversion limits, Roth recharacterizations and paying tax on a 2010 Roth conversion, and how a spouse should handle an inherited IRA. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

Send all questions to [email protected]

I know that the $100,000 earnings limit was removed in 2010, allowing everyone to convert an IRA to a Roth. Is the same true for 2011 and beyond regardless of income?

Thank you.


The answer is yes. The Tax Increase Prevention and Reconciliation Act (TIPA) signed into law on May 17, 2006 permanently eliminated all Roth IRA conversion income limits and filing status eligibility restrictions, effective 2010.



I made a partial conversion of $400,000 from my traditional IRA to a Roth in 2010. I wanted to take advantage of the two-year tax payment, and had the money available. However, I have since had my job eliminated, and will need the money set aside for taxes to stay afloat. I know the recharacterization period has expired, so is there any way to reverse the Roth, delay the payment, or set up a payment plan.? Thanks.

A recharacterization would have been a way to undo the Roth IRA conversion. However, you cannot recharacterize later than October 15 of the year following the conversion. Since that date has passed, the only option you would have is to request a private letter ruling (PLR) asking for an extension of the time to recharacterize. However, PLRs are generally granted only if the individual was not eligible to do a Roth conversion or there was an error on the part of an advisor or the IRA custodian. Also, the IRS cost to apply for a PLR is $4,000, plus you would have to pay someone to prepare the PLR request. If you cannot afford to pay the tax from other sources of income, you can always take the money out of the Roth IRA. There would be no income tax on the withdrawal. If, however, you are under age 59 ½, you would be subject to a 10% penalty on the amount withdrawn.



I would like to know which is better approach for a spouse to do under an inherited IRA. Assuming the spouse is already receiving required minimum distributions (RMDs) from the account and dies. Should she continue the account as the beneficiary in his name or should she roll the account into her IRA under her own name? Also, does she need to take the RMD in the year in which the spouse dies, if the spouse has not taken it yet? What if the spouse dies before age 70 1/2, can the spouse just roll over the account into her IRA if she is the lone beneficiary?


Al Horila

The surviving spouse would have basically three options: 1. Take the full amount out and pay the income tax 2. Choose to inherit the account or 3. Establish a spousal IRA rollover.

In all cases the RMD for the year of death would have to be satisfied by 12/31 of the year of death payable to the beneficiary if the IRA owner was in pay status. If the surviving spouse is under the age of 59 ½, it would be advantageous to use option 2. An inherited IRA would not be subject to a 10% penalty because death is an exception to the penalty. Once the spouse reaches age 59 ½, they can roll the funds over to an IRA in their own name. If using option 2 or 3, make sure the surviving spouse names their own beneficiary on the account.

- By Marvin Rotenberg and Jared Trexler


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Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

I transferred a stock from my IRA to my regular (non IRA account) and then transferred the exact same number of shares of the same stock back into my IRA within 60 days. However, the value of those shares was $10,000 higher.

Do I have a problem because I put more money into the IRA even though I transferred the same number of shares?


There is no problem. Your distribution of property (shares of stock) from your IRA qualifies to be rolled over tax-free within 60 days only if the identical stock is rolled over to a receiving IRA. It is common for the value of stock to change during the 60-day window. That’s OK and still qualifies as a tax-free rollover. When your tax return is filed for the year, your tax preparer may want to attach a note to explain the different values.