IRA conversions in year of RMD…
Can we do a Roth IRA conversion in the same year the client turns 70 1/2? I have a client that turns 70 1/2 next year with a Traditional IRA, but we may want to convert all to a Roth IRA in the same year. Allowable? Is a RMD still required?
Permalink Submitted by Alan Spross on Mon, 2009-07-20 19:10
For any IRA distribution year, including the year taxpayer reaches 70.5, the RMD must be taken out PRIOR to the conversion distribution. For 2009, this was not a concern because the RMD for 2009 has been waived. I suggest checking at year end to see if Congress passes any legislation that continues this for 2010. If so, taxpayer could convert right away in 2010 without concern for the RMD. However, if we return to a normal RMD year as expected, then the taxpayer must take that RMD out first, and THEN convert additional amounts.
If taxpayer’s modified AGI is under 100,000, perhaps a conversion should be done this year, which is the last year that a conversion can take place without the added taxable income from the RMD.
Note that even though client can defer his 2010 RMD to 4/1/2011, his required beginning date, he still must take the 2010 RMD before converting in 2010. Since most taxpayers like to take RMDs late in the year and convert early in the year, these rules usually result in a compromise where the RMD is taken earlier and the conversion later to allow the RMD to come out first. Getting it right next year is critical because of the added complications of 2010 conversion income being split between 2011 and 2012. That would make correcting an excess contribution from converting the RMD a mess to get corrected and reported in 2010.