Roth Conversion Timing
A client now wants to convert their SIMPLE IRA to a Roth. The Roth is opened but the process of rolling from the SIMPLE is just beginning. Since this is coming from a company plan my concern is that a distribution will occur from the SIMPLE but the check won’t arrive in time for the money to be placed in the Roth until 2011. Is this a problem or is the distribution coded as a distribution in this year and as long as it gets into the Roth within 60 days (even though that may push into 2011) then we’re ok?
Permalink Submitted by Alan Spross on Wed, 2010-12-15 21:53
Yes, client has 60 days from date of receipt to complete the conversion, and it will still be taxable and reported in 2010 and eligible for the two year deferral. Of course, client could also just do a same custodian transfer with the same custodian to a Roth IRA and there would be no delay. The only difference here is that although the conversion will be reported in 2010 with income deferred or opted out of deferral, the actual 5 year conversion holding period for the Roth conversion starts on 1/1 of the year the Roth conversion contribution is received. Therefore, the 5 year holding period starts a year earlier if the Roth is funded before year end 2010.
Be sure that client has met the 2 year holding period for the SIMPLE IRA before taking a distribution or rollover or there will be a very expensive mistake.