 Dear
Dr. Don,
My husband and I both have rollover IRAs from a previous employer.
My rollover IRA was from a 401(k) and his IRA was from a 403(b). Can we roll these over into a Roth IRA without paying any penalties?
-- Doubtful Debbie
 Dear
Debbie,
To convert from rollover IRAs to Roth IRAs, you have to be eligible to contribute to a Roth IRA, even though
what you're doing isn't technically a contribution.
Here's what IRS Publication 590,
"Individual Retirement Arrangements," has to say on the topic:
You can convert amounts from a traditional IRA into a Roth IRA if, for the tax year you make the withdrawal from
the traditional IRA, both of the following requirements are met:
- Your modified AGI (adjusted gross income) for Roth IRA purposes (explained in chapter 2) is not more than $100,000.
- You are not a married individual filing a separate return.
You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA.
The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution.
If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply.
Because the rollover isn't subject to mandatory withholding, you don't have to do a trustee-to-trustee transfer.
However, I'd still recommend using that approach. If you meet the 60-day deadline for reinvestment, there's no
10 percent penalty tax on taking the money out of the IRA account.
You'll still owe income taxes on
the conversion amount for the tax year of the
conversion if the contributions to your retirement
plans were made on a tax-deferred basis. It would
be best to discuss the timing of these conversions
with your tax professional to avoid paying income
taxes at higher rates or being required to pay
the alternative minimum tax.
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