RMD & Roth Conversion in same year

Submitted by MIKE KRUCHTEN on Fri, 2017-12-15 20:51

Please remind me of the rules on the following. Client has a RMD of $4,000 for 2017 with a T IRA CV of $100,000. In a position to convert 100% this year based on very large medical expenses (deduction probably goes away in 2018). I believe the RMD of $4,000 must come out 1st then convert remainder ($96,000). If not I believe converting the full $100,000 would create an excess of $4,000.

How would the IRS ever know? The 1040 will show the $100,000 as taxable IRA distributions. I realize the codes on 1099r are different but how can the IRS police this? The client will follow the rule of law but ponder how the IRS would even catch.



Submitted by David Mertz on Fri, 2017-12-15 22:16

  • The prior-year Form 5498 shows that an RMD is required for the current year and also shows the FMV on which the RMD is to be calculated.  Since the IRS knows the birthdate of the individual, the IRS has the information necessary to calculate the RMD.  The IRS receives current-year Forms 1099-R showing the amount of distributions from the traditional IRAs and Forms 5498 showing the amounts converted to Roth.  If the amount shown as having been converted is more than the amount shown as distributed minus the RMD, the IRS will be able to determine that some amount of RMD was deposited in the Roth IRA as a conversion contribution.
  • Whether the IRS will actually perform the check is a separate question.  However, the IRS has recently issued information suggesting that the IRS is increasing their scrutiny of RMD compliance, including sending reminders to individuals to take RMDs.

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