RMDs if 70.5 in 2010 and converting to Roth
My client will be 70.5 in February 2010. He plans to convert his Traditional IRAs to Roth IRAs in 2010, when the income limitations for conversions are eliminated.
1) Does he have to take an RMD for 2010 before converting (or at all if he converts)?
2) Does it matter if he converts after his 70.5 date or before it?
3) What happens if the account value goes way down and he recharacterizes in summer 2011 – does he then owe a penalty for not taking an RMD by April 1, 2011?
thank you!
Permalink Submitted by Alan Spross on Sat, 2009-11-07 01:37
1) Yes, the RMD must be taken prior to conversion.
2) No.
3) The 2010 RMD must come out prior to the 2010 conversion. If it is overlooked, part of the actual conversion is deemed to be the RMD, ie the RMD was still satisfied, but it was rolled to the Roth and becomes a failed conversion amount which must be corrected.
The 2011 RMD is based on the 12/31/2010 FMV, which is lowered due to the conversion. However, if the conversion is recharacterized it falls under the “outstanding rollovers and recharacterized conversions” paragraph on p 35 of Pub 590. The RMD for 2011 would therefore have to be increased by use of a reconstructed 12/31/2010 account value in the TIRA by adding the recharacterized amount back in.