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Year-End Roth IRA Rules

A misconception we see frequently is individuals thinking they have until April 15th to do a Roth conversion for the prior year. The Roth conversion rules are not the same as the Roth IRA contribution rules.

In order to have a 2012 Roth conversion, the funds must be out of your IRA or employer plan by December 31, 2012. They do not have to be in the Roth account by that date, but they must be out of the distributing account. This will produce a 1099-R for 2012 and the income due to the conversion will be included on your 2012 tax return.

Another misconception is that employer plan funds must go to an IRA before being converted to a Roth IRA. This used to be the case, but is no longer true. Your plan funds can go directly from your plan to your Roth IRA. This is a conversion and any taxable amounts moved to the Roth IRA will be taxable for the year of the conversion.

The Roth contribution rules allow you to make a 2012 contribution up to April 15, 2013. Unlike Roth conversions, there are income limits on Roth contributions. You must have “compensation,” which is generally your earned income, in order to make a contribution that is at least equal to the amount of the contribution.

Your ability to make a contribution is phased out when your income is too high. For 2012, if you are married filing jointly, your ability to make a contribution is phased out when income is between $173,000 - $183,000. If you are a single filer the phase-out range is $110,000 – $125,000 and if you file married-separate, your phase-out range is $0 – $10,000.

You can even make Roth contributions after age 70 ½, as long as you still have earned income or some other form of “compensation.” You can also make Roth contributions while you are making 401(k) or similar employer plan contributions.

Roth IRAs can be a terrific addition to the array of retirement assets an individual counts on in retirement – but, they are not right for everyone. If you have any questions or concerns about Roth IRAs, you should consult a knowledgeable financial advisor. You can find a list of Ed Slott-trained advisors on our website, www.irahelp.com.

Article Highlights

  • Before 12/31 - Funds being converted to a Roth IRA must be out of an IRA or employer plan
  • By 4/15 - Roth IRA contributions must be made for the prior year
  • There are income limits for making Roth IRA contributions


-By Beverly DeVeny and Jared Trexler

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