roth conversion

Submitted by gerard noronha on Mon, 2016-10-03 10:38

question for Alan…turning 70 1/2 april 2017…I am planning to take my first RMD after april 2017 but before the end of the year….can I do a roth conversion till March of 2017?? thanks in advance



Submitted by David Mertz on Mon, 2016-10-03 12:02

No, you must first complete the 2017 RMD required of the IRA from which you will be doing the Roth conversion.  See CFR 1.408A-4 Q&A 6 which answers this exact question in detail:  https://www.law.cornell.edu/cfr/text/26/1.408A-4

Submitted by gerard noronha on Mon, 2016-10-03 17:26

I guess I can take my first RMD by april 2018….I know that will make 2 rmd’s for 2018…can I then do a roth conversion in 2017 as stated earlier

Submitted by David Mertz on Mon, 2016-10-03 17:51

No, that doesn’t change anything with regard to your ability to do a Roth conversion in 2017.  A Roth conversion is a distribution and taxable rollover.  Your first distributions in 2017 are RMD to the extent that your RMD has not been satisfied and are therefore ineligible for rollover/conversion.  Therefore, you MUST satisfy your 2017 RMD for the IRA from which you will be making the conversion before making a Roth conversion in 2017 from that IRA.

Submitted by David Mertz on Mon, 2016-10-03 18:04

  • If you are planning a partial Roth conversion, in 2016 you could potentially transfer to a separate IRA an amount that you plan to convert plus an amount sufficient to satisfy the RMD on that separate IRA.  By taking advantage of CFR 1.408-8 Q&A 4, which indicates that only the RMD for that particular IRA needs to be satisfied before rolling over (or, in this case, converting) any additional amounts distributed from that IRA account, only the RMD for this separate account would have to be satisfied before converting the rest of the separate account.  The RMD for your other IRA account(s) could then be made later.
  • In your case you will be reaching age 71 in 2017, so your 2017 RMD divisor will be 26.5.  This means that you would have to transfer about 1.0392 times your planned conversion amount to be able to satisfy the RMD before making the conversion.  Of course any change in investment value between the time the funds are moved to the separate IRA account and December 31, 2016 when the account balance used to determine the RMD amount is established will cause the anticipated RMD amount to vary, so it may be best to implement this strategy near the end of 2016, if you choose to do so.

Submitted by gerard noronha on Mon, 2016-10-03 21:17

I beleive in simplify,simplify…..I will do the RMD for 2017 and then a roth conversion…..keep everything clean….thanks for the other methodology….gerry

Submitted by [email protected] on Tue, 2016-10-04 15:45

consider having the custodian withhold taxes up to 100% of the RMD, to use to help offset the tax liabliltiy of the conversion.  helps to avoid underpayment penalties.

Submitted by gerard noronha on Tue, 2016-10-04 16:13

I do estimated tax payments to the IRS well in advance to cover the taxes on a RMD.  That way I cover all tax liabilities

Submitted by Robert Bartlett on Tue, 2016-10-18 16:33

If I convert new funds from my exisiting trad IRA to an existing Roth, is the withdrawal wait time governed by the age of the exisiting Roth or is it still 5 years?

Submitted by Alan - IRA critic on Tue, 2016-10-18 18:00

Each Roth conversion must be held 5 years or until 59.5 if sooner to avoid the 10% recapture tax. The penalty will only apply to the taxable portion of the conversion. However, conversions come out only after you have already withdrawn all your regular contributions and older conversions. Therefore, chances are you will not need this money until the conversion has been held 5 years in most cases. Note that the conversion holding period is entirely different than the 5 years/59.5 requirement for the Roth to be qualified. That 5 years begins with the first Roth contribution and is used only to determine when the earnings in the Roth become tax free.

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