Multiple Conversions and tax options
I have scene in previous posts that if an individual is transacting multiple Roth IRA conversions, then they must choose the same tax treatment (either recognize 100% of the income in 2010 or split the income 50/50 over 2011 & 2012) for all of them. Is this true? I am looking at the code and don’t see it clearly stated. I also looked through the IRS’s Winter publications (EE plans news and Retirement News for Employers) and don’t see any clarification of this issue.
Can you point me to anything that clearly outlines that an individual must make one decision for [u][b]all[/b][/u] 2010 conversions?
Thank you!
Permalink Submitted by Alan Spross on Wed, 2010-03-10 00:29
I have not seen any debate on this being an “all or nothing” decision, other than a spouse can make a different election from the other spouse.
I have not found anything in Sec 512 of TIPRA in 2005 which included the any limits for 2010 Roth conversions. But the amendments to the tax code that were made reverted to the 1998 conversion language in Sec 408A and substituted 2 years for the 4 year split that was available for 1998 conversion. Copied below is the IRS Reg Q and A for the 1998 conversions:
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Q–8. Is there an exception to the income-inclusion rule described in A–7 of this section for 1998 conversions?
A–8. Yes. In the case of a distribution (including a trustee-to-trustee transfer) from a traditional IRA on or before December 31, 1998, that is converted to a Roth IRA, instead of having the entire taxable conversion amount includible in income in 1998, an individual includes in gross income for 1998 only one quarter of that amount and one quarter of that amount for each of the next 3 years. This 4-year spread also applies if the conversion amount was distributed in 1998 and contributed to the Roth IRA within the 60-day period described in section 408(d)(3)(A)(i), but after December 31, 1998. However, see §1.408A–6 A–6 for special rules requiring acceleration of inclusion if an amount subject to the 4-year spread is distributed from the Roth IRA before 2001.
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It seems clear that for 1998, the only option for income that would have been possible was a 25% split from 98 to 01. Since TIPRA just changed the spread to 2011 and 2012 vrs 2010, you are left with either all in 2010 or 50-50 in 2011 and 2012. This is as close as I can come at this point in documenting the conclusion that the 2010 conversions must all be deferred or all be reported in 2010.
Permalink Submitted by Alanna Crawford on Wed, 2010-03-10 13:50
This is [u]very[/u] helpful! Thank you!