Conversion deadline – when the funds leave, or when the funds are received?
Hi there,
We have a customer who wants to roll funds from a Traditional 403(b) into a Roth IRA to do a conversion. The distribution will be initiated in December 2015, but the funds may arrive in 2016 – does this conversion count towards the 2015 tax year or 2016 tax year?
Thanks in advance
Permalink Submitted by Alan - IRA critic on Tue, 2015-12-15 21:25
The conversion is taxable in the year the 403b makes the distribution because that determines the year they will report it on Form 1099R. The customer should not be doing this by taking a distribution in most cases, since 20% of the pre tax portion of the distribution will be withheld for federal taxes and be subject to tax and penalty. A direct rollover to the Roth IRA will avoid withholding and the entire distribution will go into the Roth IRA. One other point – by doing a direct rollover, the Roth IRA is much more likely to receive the rollover this year. The 5 year conversion holding period will start in 2015, but if the rollover is done using a 60 day indirect rollover, the Roth IRA will probably not receive the rollover contribution until 2016, and the 5 year holding period will start 1 year later.