RMD AND RECHARACTERIZING
I have a client who did a roth conversion on 7-6-09 for $37,200. When we filed his 09 return it was discovered that this MAGI exceeded the limit and therefore is required to recharacterize it back to the traditional IRA. Charles Schwab calculated the amount to be $44,624. This amount was put back into the traditional IRA on 5-3-10. The value of the traditional IRA on 12-31-09 was $148,008. My client must take an RMD in 2010. What is the amount used to calculate the RMD?
D Kalfen
Permalink Submitted by Alan Spross on Wed, 2010-06-02 21:52
The amount that is added to the 148,008 year end balance of the TIRA is neither the amount converted or the amount recharacterized after the earnings adjustment. Schwab should provide the correct figure and their calculation should factor in the balance in the Roth IRA as of 12/31/09 attributed to the amount converted. If the conversion was to a new Roth IRA, the year end Roth value can just be added to the 148,008. However, if the conversion was done to an existing Roth IRA, the year end figure would include the allocated earnings as if the recharacterization had been done on 12/31. Schwab could use the opening balance/closing balance figures for determining the 12/31 value. The opening figure would be the value of the Roth upon receipt of the conversion, and the closing value would be the total year end value of the Roth IRA.
For example, if the Roth appreciated 15% between the conversion date and 12/31/09, the amount added to the TIRA balance would be the 37,200 converted amount increased by 15%. This is the most accurate approximation of the TIRA value on 12/31 as if the client had never converted, and would therefore be the correct value to use for determining the 2010 RMD for the TIRA.