Can I deposit my IRA Annuity monthly distribution into a Roth account and treat it as Roth conversion?

[Jerry1]

From the irs:

You generally cannot make more than one rollover from the same IRA within a 1-year period. You also cannot make a rollover during this 1-year period from the IRA to which the distribution was rolled over.

How are you going to do one per year with a stream of monthly payments?

 

[RetiredHappy]

If you re-read the link that you posted regarding rollovers, it is to avoid a taxable event. In my situation, I am paying taxes on distributed amount, hence it is a Roth conversion rather than following the rollover rules.

 

[Winemaker]

I would think you would be allowed to convert the initial cost of the annuity, pay the taxes. I don't one can convert distributionsfrom an annuity. Just opinion.

 

[Jerry1]

If you re-read the link that you posted regarding rollovers, it is to avoid a taxable event. In my situation, I am paying taxes on distributed amount, hence it is a Roth conversion rather than following the rollover rules.

Just to be clear, I'm not trying to be difficult. In fact, I would do the same thing with my annuity if it's possible. I don't think it's possible. While I absolutely think Cathy and others here are better in taxes than I am, I am a cpa and I've audited and worked in taxes and other government contracts. The government is pretty good at not allowing recharacterization of financial arrangements. I'm struggling to fined the path to make this work. I hope your results are better.

 

[RetiredHappy]

Just to be clear, I'm not trying to be difficult. In fact, I would do the same thing with my annuity if it's possible. I don't think it's possible. While I absolutely think Cathy and others here are better in taxes than I am, I am a cpa and I've audited and worked in taxes and other government contracts. The government is pretty good at not allowing recharacterization of financial arrangements. I'm struggling to fined the path to make this work. I hope your results are better.

Thanks. I have searched all over internet. AI says that I can absolutely do it, but AI, as you know...is just a Big A and a little i. I will wait for Fidelity to get back to me.

 

[ChrisC]

Just for my information since I was never enticed to purchase an annuity within the framework of a traditional IRA, the annuity purchased with IRA funds is still housed within the IRA and if that is the case, it's subject to RMDs? And so why wouldn't income streams from this annuity (all taxable, right) be available to rollover to a Roth IRA and hence be in effect a Roth conversion? I'm just asking the question and trying to figure out how this might come up in the volunteer tax prepreparation work I do.

 

[Jerry1]

Thanks. I have searched all over internet. AI says that I can absolutely do it, but AI, as you know...is just a Big A and a little i. I will wait for Fidelity to get back to me.

I did better research tonight and I believe it can be done. First, I think the information Cathy provided is correct (no surprise there - thank you Cathy). From Cathy in a post above:

I don't see why there would be a problem doing a Roth conversion for each payment as you receive it. You'd have 60 days after receiving the funds to do each conversion, and the way I read Pub 590A, there's no limit on the number of times you can do a "conversion by rollover" in a year.

I read Pub 590A and did some other research and concur that there is no limit on the number of times you can do a conversion by rollover. In fact I found language on the IRS site expressly exempting Roth conversions from the 1 per year rollover limitation.

Further, I don't think you even need to confirm this with Fidelity. I think all you need to do is transfer the amount of your monthly payment to the Roth. It doesn't matter what account it comes from. It doesn't even have to be the exact amount. It just can't exceed the amount or it would be considered a contribution. All you need to do is inform Fidelity when you put the money in the Roth to code it as a rollover. I think you realize that you'll have to pay tax on the entire amount, but it will allow you to get the withdrawals into your Roth to grow tax free.

Second, I did also look into the substantially equal payments issue and concur with you that it is not applicable to your situation. I am sorry for focusing on that without better research on my end. I got off track because I used the substantially equal payments of my annuity to take money out of my IRA early (72t) and didn't appreciate that you're not talking about a life time annuity. Bad mistake on my part.

Therefore, I think all you need from Fidelity is to understand how you need to notify them when you put money in your Roth to ensure that it's coded as a rollover.

 

[jazz4cash]

Just for my information since I was never enticed to purchase an annuity within the framework of a traditional IRA, the annuity purchased with IRA funds is still housed within the IRA and if that is the case, it's subject to RMDs? And so why wouldn't income streams from this annuity (all taxable, right) be available to rollover to a Roth IRA and hence be in effect a Roth conversion? I'm just asking the question and trying to figure out how this might come up in the volunteer tax prepreparation work I do.

I don’t think the annuity has anything to do with this. I believe the rules stipulate you cannot convertt RMD funds to a Roth. If you are subject to RMD you can convert additional funds and pay additional taxes. That could mean a higher marginal rate that you were trying to a avoid by converting.

 

[zinger1457]

Just for my information since I was never enticed to purchase an annuity within the framework of a traditional IRA, the annuity purchased with IRA funds is still housed within the IRA and if that is the case, it's subject to RMDs?

That is correct. I believe you would use the FMV of the annuity to calculate the RMD for the annuity. Since the annuity payments would likely be much higher than the RMD you could use the additional amount to offset the RMD requirements for your other accounts.

 

[ChrisC]

I don’t think the annuity has anything to do with this. I believe the rules stipulate you cannot convertt RMD funds to a Roth. If you are subject to RMD you can convert additional funds and pay additional taxes. That could mean a higher marginal rate that you were trying to a avoid by converting.

I wasn't talking about converting RMD funds to Roth. Zinger1457 answered my first question. Others have answered my second question.

 

[jim584672]

Sounds like monthly Roth conversions. You will have to pay taxes on them.

 

[pb4uski]

I think you can until you are subject to RMDs. Once you are RMD age, then RMDs must be taken before any Roth conversions can be done.

"There is a famous IRS rule that limits you to one indirect rollover per 12-month period.
The Good News: This rule does not apply to Roth conversions from a qualified plan (like your annuity) to a Roth IRA.
The Benefit: You are allowed to do these "monthly conversions" as often as you like without violating the one-rollover-per-year limit."

 

[RetiredHappy]

I want to give everyone an update. My Fidelity FA who is also a CFP, said that when money is deposited into a bank, it becomes an indirect Rollover when I then deposit into a Roth, which is limited to only once a year. So I can only convert 1 month out of the 12 months of deposit.

 

[SecondCor521]

I want to give everyone an update. My Fidelity FA who is also a CFP, said that when money is deposited into a bank, it becomes an indirect Rollover when I then deposit into a Roth, which is limited to only once a year. So I can only convert 1 month out of the 12 months of deposit.

I believe your Fidelity FA is incorrect.

From IRS Pub 590-A:

"You can make only one rollover from an IRA to another (or the same) IRA in any 1-year period regardless of the number of IRAs you own. The limit will apply by aggregating all of an individual's IRAs (whether traditional, Roth, or SIMPLE), effectively treating them as one IRA for purposes of the limit. However, trustee-to-trustee transfers between IRAs aren’t limited and rollovers from traditional IRAs to Roth IRAs (conversions) aren’t limited."

-- Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs) | Internal Revenue Service

Emphasis added. Note that there is no qualification as to whether the traditional to Roth rollover is direct or indirect.

 

[zinger1457]

I also contacted Schwab to see if I could perform the annuity to Roth conversion and their initial response is obvious they don't understand the question, waiting for a follow-up response. One possible issue I see with Schwab is that the only way I can put money into my Schwab Roth account using their online tool is either a conversion directly from my Schwab IRA account or a contribution, there's no option to use external accounts to do a conversion. So even if the annuity distribution to Roth is allowed getting the transaction completed may not be straight forward.

 

[Jerry1]

SecondCor521 is correct and Fidelity is wrong. I read the same thing in two different areas on the its web site. Indirect rollovers into your Roth have no 1 year limit.

 

[pb4uski]

SecondCor521 is correct and Fidelity is wrong. I read the same thing in two different areas on the its web site. Indirect rollovers into your Roth have no 1 year limit.

I agree. The one year limit relates to rollovers from a tIRA to a tIRA or from a Roth IRA to a Roth IRA within 60 days, but not to Roth conversions which are from a tIRA to a Roth IRA.

 

[Jerry1]

Just ask the Fidelity rep how to do it and tell them you'll deal with the tax consequences. The only thing I can see holding you back from doing this is if their system is programed in a way that just will not allow it. I doubt that is the case.