Roth Conversion – date first security was processed or each indiviudal security
Client requested a Roth conversion at the end of 2015.
Some securities were converted on 12/31, but others did not get converted until 1/4.
For tax reporting purposes, will the IRS view this as one conversion that occurred in 2015 or will the IRS view this as two conversions – 1 for the amount converted on 12/31 and the 1 for the amount converted on 1/4?
Permalink Submitted by Alan - IRA critic on Wed, 2016-01-06 21:32
There are two questions here – will the conversion request end up split between 2015 and 2016, and will it be considered separate conversions for recharacterization purposes? Client will have to wait until the 1099R is received for 2015 to see if it includes just the first batch of securities, or the entire amount. There will also be a 5498 issued in May to report conversion contributions received in 2015. The 1099R will determine the value of any 2015 conversion which client will report on Form 8606 for tax purposes. If the 1099R does not include the full value, client will have a 2015 conversion and a 2016 conversion that will be reported on 2016 taxes. In the event of a recharacterization, client would have to separately request that the conversion done in 2015 be recharacterized and/or the conversion done in 2016. Obviously, there could be a considerable tax impact involved if the second conversion ends up in 2016 rather than 2015. To attain any certainty regarding IRA transactions, they should be ordered before Christmas if the client wants to be sure they get done in the same calendar year.