Valuation of IRA for Roth Conversion
Are there any guidelines as to the timing to value an IRA for conversion from TIRA to a Roth in 2010. In other words if you fill out the forms and send them in to a custodian to make the conversion is it valued on the day the custodian does the conversion? at the end of that month? at the start of that quarter? At the beginning of that year? Should one specify a date to do the conversion? Thanks.
Permalink Submitted by Alan Spross on Sun, 2009-12-06 22:32
Conversions are primarily ordered by amounts with an immediate processing date or distribution date. If you are converting a specified number of shares instead of a dollar amount, the conversion valuation will be based on the custodians usual processing procedures to determine whether the stock is valued at the processing day closing price or median price for the day. However, it should not be valued at a later time than the processing day’s values.
With share value fluctuation over a couple days mailing or processing times, you might specify that you want the number of shares converted that most closely equals the dollar amount you want to be taxed on, and let them do the math when they process the conversion. Their forms will probably offer you some options on how you want the conversion handled with respect to processing date and particularly the assets you want to be transferred to the Roth IRA. Custodians may also be willing to work with you if you have a specific concern or instructions for them to follow.
If you are concerned with lack of control of the converted amount, you can always sell assets in the TIRA and then convert cash if your money market fund will not cover your desired conversion amount.
The IRS cracked down on converting annuity IRAs to Roth IRAs about 3 years ago and specified that the cash surrender value of the annuity would no longer be an acceptable valuation method. Certain fringe benefits would have to be considered for valuation purposes subject to minimum amounts.
Permalink Submitted by Harvey Silberstein on Mon, 2009-12-07 02:25
Thank you Alan for the indepth response. What about a situation where shares in a limited partnership are held in an TIRA that is to be converted to a Roth in 2010. It is anticipated that the limited partnership shares will not actually be sold but held in the IRA throughout the conversion process. The shares won’t actually have a valuation until the end of any month. So suppose the custodian processes the request in the middle of a month, would you use the valuation at month end when reporting amounts as income for tax purposes? Would it make sense to request a specific conversion date to coincide with an end of a month valuation or does it not matter? Thanks.
Permalink Submitted by Alan Spross on Mon, 2009-12-07 03:27
In a case like that I suggest inquiring how the IRA custodian would value a mid month conversion. After determining that information the IRA owner could determine whether or not to go with that method or time the conversion very close to the month end so there will be no surprises. That would provide better control over the tax bill for the conversion.
I do not know if there are any IRS Regs that specify a valuation method for this type of investment. The IRS is more concerned with the equity of the method as compared to the actual specifics.