@tbrown21 wrote:
@aburks1021 If you are over 55 and you retired, there is no 10% penalty. Did you take the distribution as a partial lump sum option, if so you can rollover the entire amount within 60 days to your own Roth IRA, or you can fund (up to maximum depending on income, age, filing status) to your wife's Roth IRA, but you will add that amount to your income. (no penalty) The other posters that answered you question probable aren't familiar with the TX retirement plan.
Any qualified retirement plan is subject to the same rules.
The problems are that the original post described that the taxpayer (1) withdrew money from a qualified plan, (2) "rolled over" some money into a Roth IRA in his name, (3) "rolled over" some money into a spouse IRA, and (4) kept some money. The taxpayer never said he was retired, and didn't give his age, just that he used to work for the state of Texas. Because the taxpayer indicated that some of the transaction was subject to 10% penalty, I assume he is under age 55 or 59-1/2.
#2 is a rollover with Roth conversion, that's simple. He pays regular income tax but no penalty regardless of age.
#4 is a distribution, that's simple. He pays income tax and the penalty if under age.
#3 is the problem. He could take a distribution (subject to income tax plus the penalty) and then make a contribution of $6000 (or $7000 if his spouse is over age 50) but he can't "roll over" any part of his account into an account in her name. And, he can only make the contribution if he or his spouse have taxable compensation from working. If he "rolled over" more than $6000 or $7000 into the spouse account, that needs to come out of the Roth or it will be further penalized.
Now regarding age, I don't think just being age 55 will qualify the distribution. He has to be age 55 or older in the year he separated from service. That is to say, suppose he worked for Texas from age 30 to age 40, and is now age 56. The distribution is not qualified.
