RMD + Roth Conversion

Submitted by Josh Rigden on Wed, 2019-11-06 20:41

Unique situation here. So an RMD was due for 2019, however prior to completing the RMD, a Roth Conversion was done which moved all the money from the Traditional to the Roth. Now the Traditional has a $0 balance but an RMD is still due by Dec 31st. When I called the broker dealer they said the IRS changed the rules and after 2018 a Roth Conversion could not be reversed. Thus now what do I do when this RMD needs to be satisfied by year end but there is no balance in the account? A 2019 contribution has already been made and the Traditional IRA has been maxed out, so an additional contribution cannot be made and then use that money to process the RMD.

The broker dealer said I need to complete an IRA distribution form from the Roth IRA, and do an excess contribution. But they said that money cannot be put into the Traditional IRA without it counting as a contribution, and thus they advised the money go into a taxable account. I do not see how this will help the current problem though. I would appreciate any suggestions!



Submitted by David Mertz on Wed, 2019-11-06 21:17

  • This situation isn’t too uncommon and has been covered in this forum several times before.
  • A Roth conversion consists of a regular distribution from the traditional IRA and a conversion contribution to the Roth IRA.
  • In an RMD year, regular distributions from a traditional IRA consist first of the RMD which is not eligible for rollover or conversion (assuming that the RMD for this traditional IRA was not already been satisfied by a distribution from a different traditional IRA of the participant by aggregation of RMDs).
  • Together these mean that the distribution from the traditional IRA included the RMD, so the RMD for the traditional IRA was satisfied, but the deposit of that portion into the Roth IRA constituted a regular contribution to the Roth IRA, not a conversion contribution, and to the extent that it exceeded the amount that the individual was eligible to contribute as a regular Roth IRA contribution it’s an excess contribution to the Roth IRA.  To avoid any excess contribution penalty, an excess Roth IRA contribution must be distributed as an explicit return of excess contribution before the due date of the tax return for that year, 2019 in this case.
  • For the Roth IRA custodian to process this as a return of excess contribution from the Roth IRA, explanation to the custodian will be needed so that they understand how the excess contribution was made and so that they can calculate and distribute the correct gain or loss adjusted amount required of a return of contribution before the due date of the tax return.  That same explanation will need to be provided to the IRS with the tax return.
  • Nothing special has to be done with regard to the traditional IRA other than to report only the amount of the distribution from the traditional IRA that exceeded the RMD as the amount converted and the RMD portion as not rolled over or converted.  The RMD portion deposited will need to be reported as a regular Roth IRA contribution with some amount (perhaps all of it) returned.  This will require explanation with the tax return.
  • If any amount of the distribution from the traditional IRA was withheld for taxes and not deposited into the Roth IRA as part of the conversion, that amount would have come first from the RMD portion of the distribution.

Submitted by Josh Rigden on Thu, 2019-11-07 21:16

Excellent! Thank you so much!

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