Can roth conversion satisfy RMD?
Can a Roth conversion (of an amount greater than RMD) satisfy the RMD for that year? I don’t see why it shouldn’t since the tax is paid on it, regardless of where the money goes.
Can a Roth conversion (of an amount greater than RMD) satisfy the RMD for that year? I don’t see why it shouldn’t since the tax is paid on it, regardless of where the money goes.
Permalink Submitted by Alan Spross on Thu, 2011-06-16 20:21
No, because an RMD cannot be rolled over and a Roth conversion is a distribution and rollover.
In an RMD year, you must first take out your RMD and then if you want to convert additional amounts, you can do so. But the first distribution is deemed to be the RMD so the conversion cannot be done prior to the RMD distribution.
Permalink Submitted by Cathleen Burns on Fri, 2011-06-17 16:06
well we already did the conversion first, now what?? do we have to recharacterize, take RMD, then convert again? Thanks!
Permalink Submitted by Alan Spross on Fri, 2011-06-17 16:48
No. You have already taken the RMD, the problem is that you converted it.
When you roll over an RMD in error, it is treated as an excess regular contribution to the Roth IRA, and should be corrected in the same way as an excess regular contribution. This is more of a reporting hassle than costing you much, since you must explain to the custodian how you want it handled and treated on the 1099R.
For example, if you converted 10k and the RMD amount was 4k, then you tell the custodian to treat 4k as an excess regular contribution. They do an earnings calculation on the 4k and it could be positive or negative. The adjusted amount is distributed to you from the Roth IRA. If there are earnings, the earnings are taxable. The conversion is reported on Form 8606 and should only include the allowable conversion of 6k, but all 10k shows as taxable on line 15b of Form 1040. Any earnings also go on 15b. An explanatory statement should be included with your tax return explaining the corrective distribution including dates and amounts. Note that no amount goes back to the TIRA.
The above all assumes this is in 2011, but if in 2010 there are additional issues because of the special 2010 conversion rules. If this was for 2010, let me know and also if you have filed your 2010 return yet or planned to report the conversion in 2011 and 2012.