ROTH Conversion

Submitted by Aaron Lieberman on Thu, 2018-08-30 16:57

Client over 70 1/2 does a ROTH Conversion….100K Year 1 & 100K Year 2. His earnings in Year 1 & Year 2 are a total of $20,000 (10K ea year) – all hypothetical! The client takes out 110K after year 2. I believe since the earnings are taxed last (ordering rules), the 110K is all basis. The full 200K would have be withdrawn before any of the earning are taxed (before the 5 year rule is met)! Also, who keeps track of the record keeping?



Submitted by Alan - IRA critic on Fri, 2018-08-31 00:09

  • Client keeps track of the Roth record keeping and need to know his accumulated basis in order to report any non qualified distribution on Form 8606. Sounds like this is his first Roth contribution and if so his Roth will not become qualified until the 5 th year is complete, but the first 200k distributed will be tax and penalty free.
  • A conversion comes from a non Roth IRA. A conversion should not be done at age 70.5 until his RMD for the year has been completed, then he can convert any additional amounts. The first distribution in any of these years is deemed to apply to the RMD. If he converted any RMD money in error, the amount of the RMD is treated as a regular Roth contribution, and would be excess an excess contribution to the extent he does not qualify for a regular Roth contribution. Hope this error was not made.

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