Rollover to Roth IRA Possible with Monthly Pension Payments?

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stargazerlily03
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Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by stargazerlily03 »

My DH has a pension he receives by monthly payments (not a lump sum annual payment). Approximately $75K per year. Is it possible/do-able to roll this over to a ROTH IRA? We do not need the money. If so, how do we do this? I am not able to find the answer via google. TIA!
Alan S.
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by Alan S. »

stargazerlily03 wrote: Fri Mar 24, 2023 3:38 pm My DH has a pension he receives by monthly payments (not a lump sum annual payment). Approximately $75K per year. Is it possible/do-able to roll this over to a ROTH IRA? We do not need the money. If so, how do we do this? I am not able to find the answer via google. TIA!
These payments cannot be rolled over to any type of retirement plan. The reason is that they fall under an exception to the definition of an "eligible rollover distribution" per Sec 402(c)(4) of the tax code copied below:
(4)Eligible rollover distribution
For purposes of this subsection, the term “eligible rollover distribution” means any distribution to an employee of all or any portion of the balance to the credit of the employee in a qualified trust; except that such term shall not include—
(A)any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made—
(i)for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee’s designated beneficiary, or
(ii)for a specified period of 10 years or more,
delamer
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by delamer »

No, it isn’t possible to roll it into a Roth.

If he’s still working, he might be able to put some of it onto a Roth (based on the annual limit for his age).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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retiredjg
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by retiredjg »

Rollover? No. But if one of you is still working, it might be possible to make Roth IRA contributions (yours and his) using that money.
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stargazerlily03
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by stargazerlily03 »

Thank you so much! I used Turbo Tax once again for our tax return and noticed for the first time on the worksheet that the entire amount was eligible for a rollover. Uuggghh. As we do not need it, any re-investment into a taxable account will be double taxed again unless we opt for a tax free muni-bond fund? We live in NY and are in the 22% tax bracket for 2022 and were in the 32% tax bracket in 2021. Income limitation prevents us from contributing to a ROTH IRA.
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retiredjg
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by retiredjg »

stargazerlily03 wrote: Fri Mar 24, 2023 5:30 pm Thank you so much! I used Turbo Tax once again for our tax return and noticed for the first time on the worksheet that the entire amount was eligible for a rollover.
Maybe you should tell us more about this. What worksheet? Usually, a pension can be rolled over to tIRA as a lump sum before starting monthly payments. I don't think rolling over to tIRA after starting monthly payments is common. I'm not even sure it is possible. I suppose it could be rolled to Roth IRA as a lump sum, before starting payments, but the taxes on that would be enormous.

As we do not need it, any re-investment into a taxable account will be double taxed again unless we opt for a tax free muni-bond fund?
No. The money will be taxed one time - as you receive it.

If you put it in a taxable account instead of spending it, the gains it makes will be taxed as you take the money out. And there might be some small taxable capital gains distributions or dividends each year. But the money you invested is not taxed again.
We live in NY and are in the 22% tax bracket for 2022 and were in the 32% tax bracket in 2021. Income limitation prevents us from contributing to a ROTH IRA.
Most if not all people in the 22% tax bracket can contribute to Roth IRA.
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stargazerlily03
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by stargazerlily03 »

retiredjg wrote: Fri Mar 24, 2023 5:41 pm
stargazerlily03 wrote: Fri Mar 24, 2023 5:30 pm Thank you so much! I used Turbo Tax once again for our tax return and noticed for the first time on the worksheet that the entire amount was eligible for a rollover.
Maybe you should tell us more about this. What worksheet? Usually, a pension can be rolled over to tIRA as a lump sum before starting monthly payments. I don't think rolling over to tIRA after starting monthly payments is common. I'm not even sure it is possible. I suppose it could be rolled to Roth IRA as a lump sum, before starting payments, but the taxes on that would be enormous.

Form 1099-R (OK, not a WKS) under Rollovers, Roth Conversions, Roth Rollovers, Recharacterizations. Item B4 states the total amount of his pension as amount of this distribution that may be rolled or converted to a ROTH IRA. Is the key word "May?" The amount is the total pension although I checked the box that they were monthly payments rather than a lump sum.

As we do not need it, any re-investment into a taxable account will be double taxed again unless we opt for a tax free muni-bond fund?
No. The money will be taxed one time - as you receive it.

If you put it in a taxable account instead of spending it, the gains it makes will be taxed as you take the money out. And there might be some small taxable capital gains distributions or dividends each year. But the money you invested is not taxed again.

I am getting it.
We live in NY and are in the 22% tax bracket for 2022 and were in the 32% tax bracket in 2021. Income limitation prevents us from contributing to a ROTH IRA.
Most if not all people in the 22% tax bracket can contribute to Roth IRA.
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retiredjg
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by retiredjg »

stargazerlily03 wrote: Fri Mar 24, 2023 6:32 pm Form 1099-R (OK, not a WKS) under Rollovers, Roth Conversions, Roth Rollovers, Recharacterizations. Item B4 states the total amount of his pension as amount of this distribution that may be rolled or converted to a ROTH IRA. Is the key word "May?" The amount is the total pension although I checked the box that they were monthly payments rather than a lump sum.
I'm sorry but I don't know what/where Item B4 is. Can you be more specific?

Are you sure this is a pension?

It is possible he is just getting monthly distributions from a 401k type account? That could be rolled into IRA or converted to Roth IRA.

What is in box 7 of the 1099R?
Topic Author
stargazerlily03
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by stargazerlily03 »

Yes, this is a pension with monthly payments that are reported on a 1099-R; it is not a 401K, etc. The form 1099-R is under our tax forms in Turbo Tax.

retiredjg wrote: Sat Mar 25, 2023 8:12 am
stargazerlily03 wrote: Fri Mar 24, 2023 6:32 pm Form 1099-R (OK, not a WKS) under Rollovers, Roth Conversions, Roth Rollovers, Recharacterizations. Item B4 states the total amount of his pension as amount of this distribution that may be rolled or converted to a ROTH IRA. Is the key word "May?" The amount is the total pension although I checked the box that they were monthly payments rather than a lump sum.
I'm sorry but I don't know what/where Item B4 is. Can you be more specific?

Are you sure this is a pension?

It is possible he is just getting monthly distributions from a 401k type account? That could be rolled into IRA or converted to Roth IRA.

What is in box 7 of the 1099R?
Jovby
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by Jovby »

stargazerlily03 wrote: Fri Mar 24, 2023 5:30 pm As we do not need it, any re-investment into a taxable account will be double taxed again unless we opt for a tax free muni-bond fund?
retiredjg wrote: Fri Mar 24, 2023 5:41 pm No. The money will be taxed one time - as you receive it.

If you put it in a taxable account instead of spending it, the gains it makes will be taxed as you take the money out. And there might be some small taxable capital gains distributions or dividends each year. But the money you invested is not taxed again.
That is correct. The amount you invest in the taxable account (the amount you already paid taxes on) will not be taxed again, only the dividends (when they are earned) and capital gains (when the asset is sold).

To add to that, if the taxable account is left to your heirs then the assets will get a step up in basis at your death and the capital gains won't be taxed at all, so the only taxes will be on the dividends. Not quite as attractive as a ROTH, but pretty tax efficient nonetheless.
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stargazerlily03
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by stargazerlily03 »

Thank you all. I am convinced this is a Turbo Tax "error." Not the first that I've seen.
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LilyFleur
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by LilyFleur »

This seemed interesting to me.

I just entered my 1099-R for my pension into Turbotax.

Then I clicked the "Forms" button and took a look at the 1099-R that I had just entered for my pension.

On the page entitled "Additional Distribution Information," under "Rollovers, Roth Conversions, Roth Rollovers, and Recharacterizations," under B4 it says "Amount of this distribution that may be rolled or converted to a Roth IRA," and it gives the entire yearly total for my pension (the same amount as in Box 1 on my 1099-R form from my pension, the gross distribution).

This does not seem correct to me.
(Disclaimer: a lot of the tax forms can seem rather unintelligible to me.)
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retiredjg
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Re: Rollover to Roth IRA Possible with Monthly Pension Payments?

Post by retiredjg »

I see what you mean. I looked at mine and found the same thing. Don't know why it says that but "tax speak" sometimes does not mean what it seems to mean.
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