Ineligible Roth Conversion
Hello,
I had a client who had a 2024 RMD of $700 and before taking it they did a $16,000 Roth conversion and withheld 15% federal taxes. I told them that $700 of that needs to be removed as a return of excess. My question is should they be grossing up the $700 when the excess is taken out or can they just remove what the net amount of the $700 would have been after federal taxes were withheld.
Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2024-08-28 13:31
There is no excess because the withholding to the IRS is treated as a distribution to which the RMD applies. Therefore, if the client wants to complete a 60 day rollover, then only 1,700 (2400 WH less 700 RMD) can be rolled to the Roth or back to the TIRA.