RMD for Roth Conversion at 70 1/2
A client reaches 70.5 in 2010 and chooses to take their RMD in 2011 prior to April deadline. Can they do a conversion in 2010 without taking RMD in 2010 and delaying RMD to 2011?
Wes
A client reaches 70.5 in 2010 and chooses to take their RMD in 2011 prior to April deadline. Can they do a conversion in 2010 without taking RMD in 2010 and delaying RMD to 2011?
Wes
Permalink Submitted by mk foss on Fri, 2010-10-15 18:50
A great idea but IRS caught onto this one early and said in regulations that it’s a no go. The first distribution in the year you reach age 70 1/2 must be the RMD even though you’re not required to take one until early in the following tax year.
Permalink Submitted by wes carr on Mon, 2010-10-18 11:46
Thanks. Can you give the specific reference to the regulations for this issue for our files?
Permalink Submitted by Alan Spross on Mon, 2010-10-18 17:39
See Q & A #6 in IRS Reg attached:
http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A…
The requirement to take out the RMD first applies to all RMD distribution years, not just the first year. There will undoubtedly be some taxpayers that convert to a Roth as their first distribution in one of those years. If that happens, the RMD has still be satisfied, but since an RMD is not rollover eligible the amount of the RMD is considered as a regular (not a conversion) contribution to the Roth IRA. In most cases, but not all, the taxpayer would not be eligible to make a contribution as large as the converted amount and this would produce an excess Roth contribution. That excess contribution would have to be eventually corrected by doing either a timely correction that would include earnings, or doing a later correction after incurring a 6% excise tax for each year the amount is not withdrawn.