IRS RMD Relief & Roth Conversions
Hello,
Can someone confirm that the 2009 RMD relief also applies to any distributions taken from the IRA, even if they are not RMDs, as long as it meets the IRS requirements? I assume the answer is yes.
Also, Ed was quoted in a recent WSJ article saying that one fix for an unintended 2009 RMD is to funnel the money into a Roth IRA. If you have already taken several distributions during the year how would you now get the money into a Roth IRA without initial conversion paperwork? If this possible please explain the steps.
Thanks.
Permalink Submitted by Alan Spross on Tue, 2009-12-08 02:08
The RMD relief only applies up to the amount of the RMD for 2009. For example, if the RMD was $5,000 and someone withdrew $7,000, ONLY the 5,000 could be rolled back to the IRA. The additional amount could also be rolled over if within 60 days of distribution but otherwise could not.
The Roth conversion is a “work around” when you find yourself with an IRA distribution that you would like to roll back to the IRA but cannot because you have already used up your one permitted rollover for the 12 month period. That distribution could be converted to a Roth IRA because that does not count as a rollover with respect to the 12 month limitation. Afterwards, the Roth conversion can be recharacterized with the funds going back to the TIRA. A recharacterization also does not count, but of course must be done by direct transfer anyway.
This method does not solve all problems because of the 60 day rollover limit. For example, if someone took out 2,000 each month through October, there are only 2 of those monthly distributions that can be rolled over or converted due to the 60 day time limit. Notice 2009-82 allows one of the older distributions to be rolled back as late as 11/30 (now passed). So the person could roll back one of the installments within 60 days, convert another to a Roth and then recharacterize it back to the TIRA, and roll over an older one by 11/30 per Notice 2009-82. That would result in undoing 3 of the monthly distributions, but the other 7 would have to stand.