Roth Conversion question
I thought the tax on the conversion is figured out based on the date of the market value of the converted IRA funds on the date of the conversion.
I recently attended a seminar when they said the date can be the end of the tax year. Are there any circumstances where that could be true? Thanks!
Permalink Submitted by tomd37 on Thu, 2010-04-22 12:14
None of which I am aware. The calculation of the RMD for a given year is based on the value of the traditional IRA or 401k at the end of the previous year. If the comment was made in reply to a question maybe they or you misunderstood the question or answer.
Permalink Submitted by Alan Spross on Thu, 2010-04-22 21:09
That would be true if the taxpayer has a basis in the TIRA account per Form 8606, or after tax contributions in an employer plan that is directly converted, when the conversion amount is less than the full value, ie a partial conversion.
For an IRA, the 8606 year end value in the year of conversion is used to determine the taxable portion. Therefore, if the remaining unconverted funds increase in value, it will also increase the taxable percentage of the conversion. If the remaining values drop, the taxable portion also drops. Same thing for a partial direct conversion from an employer plan which contains after tax contributions. The rest of the account has time to gain or lose value from the date of conversion to the end of the year.
Again, the above does not apply to total conversions because there is nothing left in the plan or TIRA to change value after the conversion date.
For 2010 conversions reported in 2011 and 2012, the AMOUNT of taxable income for those years is determined at the end of 2010, but the actual tax is determined in 2011 and 2012. If there is basis, the 2010 8606 will calculate the taxable amount based on total values that apply on 12/31/2010.