Reader mailbag: Rules for Roth IRAs, minimum withdrawals
Posted on 24 December 2009
By Mark Miller
Permanent URL of this article: http://retirementrevised.com/money/reader-mailbag-rules-for-roth-iras-minimum-withdrawals
Q: I opened a Roth IRA about 15 years ago before I married my present husband and I’ve contributed a little to it over the years. Now that I’m retired and no longer bringing in any income, can I still contribute to my Roth IRA? If so, are there any special stipulations I should be aware of?
I receive only Social Security income, but share my husband’s pension and his Social Security income. The Roth IRA is currently in my name and my husband’s name in trust. Also, some years ago, I converted my 401(K) and invested in a deferred annuity. If I were to withdraw some of this money, would I be able to contribute it to the Roth IRA? I am 66 and my husband is 72. –S.S., Casa Grande, Ariz.
A: I posed this question to the IRA team at Fidelity Investments. Their reply: “In order to contribute to a Roth IRA, you (or your spouse, if filing joint) must have earned income. Earned income would not include Social Security or pension. Regarding the deferred annuity–yes, if the money is invested in an annuity, you may be eligible to convert some of it to a Roth IRA. However, you should be aware that this would be a taxable event, and you would still need to meet the eligibility requirements for a Roth. Also, keep in mind that the annuity may be subject to surrender fees which may offset the benefit of the conversion.”
Q: I know that Roth IRA income does not affect Social Security payments. I also know that Social Security Disability has some different rules. I am 62 and have been on Disability since January, 2005. I have a Roth IRA and a retirement annuity account. If I start taking payments from these accounts, will it affect my disability income? I need about $300 a month in addition to my disability to meet my monthly expenses. –H.K., via the Internet
A: Any income that you receive from these accounts will not affect Social Security Disability Insurance (SSDI) benefits, says Paul Gada, personal financial planning director at Allsup, which provides counseling on SSDI and Medicare services. “To qualify for and retain SSDI benefits, you must be unable to do substantial, gainful activity,” Gada says. “This essentially means work, which in turn, involves earned income.”
“Retirement accounts, as well as other personal savings and investments, are not classified as earned income from work, so they do not impact SSDI eligibility. There may be some confusion here with Supplemental Security Income (SSI), which is a means-based program. To qualify for and retain SSI benefits, you must meet very specific financial requirements with very strict income and asset restrictions. This is not the case, however, with SSDI benefits.”
Q: My wife and I have three IRA accounts and one joint account that is not an IRA. Can we transfer from our IRAs (stock) to our joint account, and will they be considered as satisfying our annual required minimum withdrawal distribution? –L.B., via the Internet
A: “A distribution of stock from an IRA to a personal account–individual or joint with a spouse–does qualify as a minimum required distribution,” says Jim Lange, author of Retire Secure! Pay Taxes Later-The Key to Making Your Money Last (Wiley, 2009). “Of course, minimum distributions were suspended by the federal government in 2009. In fact, most seniors with incomes of less than $100,000 would be well advised to make a Roth IRA conversion before required distributions return next year, while their income (and hence their tax bracket) is as low or lower than it will ever be again.”
Q: I have Medicare Parts A and B, plus a United Autoworkers’ supplemental policy. Can I still purchase a Medigap insurance policy, and would that be a wise choice?–R.L., via the Internet
A: Due to the complexities of supplemental Medicare policies, you should sort this out with the help of the free Medicare counseling services available from the State Health Insurance Assistance Programs (SHIP). These free, personalized counseling services are available in every state. Click here to find your local SHIP.
December 24th, 2009 at 10:57 am
I know this may sound crazy, but I would consider investing in hard assets, things like gold, land, even real estate. It’s just a matter of time before inflation creeps up and makes cash investments worth less and less..
I would be very cautious about converting to Roth because of the reasons mentioned above (withdrawal penalty).
This may also help you:
http://www.rothirarules.net/roth-ira-withdrawal.htm
http://www.rothirarules.net/roth-ira-rules.htm
http://www.rothirarules.net/roth-ira-tax.htm
http://www.rothirarules.net/roth-IRA-Rollover.htm
http://www.rothirarules.net
May 23rd, 2010 at 3:16 pm
Two years ago I had a stroke and have been on LTD most of the time since then. My LTD company is forcing me to go on SSDI.
In one of the many pamphlets I’ve recv’d from Social Security under the heading “Things you own” it states ["You may be able to get SSI if your resources are worth no more than $2000 for a person. We do not count everything you own when we decide if you can get SSI. We do not count your home, and usually don't count your car. We do count cash, bank accounts, stocks and bonds"].
My questions…
Are retirement accounts included in this as well? I’m unable to find a definitive answer on the social security site. I have a couple 401k rollovers and one that I believe is still active from my last employer. What do I do with them?
I have a savings account too (nothing large, I’ve been a blue collar worker for most of my career) will I have to get rid of that in order to qualify for SSDI? I was thinking of moving it into a Roth but I’m unable to find anything useful as to whether they’re OK or not.
What can I keep? What do they/don’t they count? Are there any investments I can make at this time? I just turned 46 and will probably be on LTD till…?
May 23rd, 2010 at 3:22 pm
Marty, you should get a consult on this from your local State Health Insurance Assistance Program. These are non-profit agencies staffed with experts on Social Security, Medicare and disability. You can find your local SHIP here:
http://www.hapnetwork.org/ship-locator/
August 31st, 2010 at 5:17 pm
I am not sure if you can make Roth IRA contributions with social security income…. To qualify for a Roth IRA, your income must be ‘qualifying’:
There are three categories of qualifying income for Roth IRA
Amounts earned as an employee,
Self-employment income, and
Alimony income.
Amounts Earned as an Employee
If you work as an employee, compensation income generally includes your wages, salaries, tips, bonuses, commissions and similar amounts. But the following items are not qualifying income:
Pension or annuity income.
Deferred compensation (payments postponed from a prior year).
Any amount you exclude from income (for example, certain foreign earned income).
Self-Employment Income
Qualifying income also includes the types of income that are subject to self-employment tax. (It includes these types of income even if you don’t pay self-employment tax because of your religious beliefs.) You may earn self-employment income in various ways:
You can be an independent contractor who provides services (for example, as a consultant or a technician) without becoming an employee.
You can be a professional (such as a dentist or an accountant) with your own practice.
You can have your own business (not in a corporation) — in other words, you can be a sole proprietor. If you’re a sole proprietor, you report your business income and deductions on Schedule C of Form 1040.
You can be a member of a partnership or limited liability company (“LLC”) that carries on a trade or business. In this case, the partnership or LLC should provide you with a Schedule K-1 each year telling you how much income to report, and how much of that income (if any) is self-employment income.
September 8th, 2010 at 6:38 am
I’m just wondering if anyone has thought about so called death tax and how does it impact Roth IRA
September 8th, 2010 at 6:39 am
If we talk about Roth IRA Rules – I’ve found an interesting article here -> http://www.rothira.org/Rules.html
November 12th, 2010 at 9:42 pm
I am 55yrs old and have been approved or ssdi. I have recieved 2 ssdi payments at 1971.00 per month. Next year i will draw about 24000.00 and will be under the 25000.00 limit. I have 95000.00 in my 401 turned ira acct. Should i cash this in and pay the penalty before the end on the year–thanks-Donnie