multipule Roth convesions in one year
I have a client that converted his SEP and his Simple plan accounts to ROTH IRAs in 2010. He wants to tax the income from one of the accounts in 2010 and elect to split the tax on the other account for reporting in 2011 and 2012. Can he do that? All the contributions were deductible.
Permalink Submitted by Alan Spross on Tue, 2011-01-11 18:31
He must make the same election for all 2010 conversions, ie either defer the income on all to 2011 and 2012 or opt out by checking a box on Form 8606 and reporting all conversion income in 2010. If client has a spouse that also converted in 2010, the spouse can make a different election than he does.
Permalink Submitted by Peter Lingane on Fri, 2011-01-14 18:51
I suspect that this is the correct answer but a citation of some sort would be useful.
Separate elections are not addressed in the Code or in regulations. The IRS allows separate elections for conversions to Roth IRAs and for in-plan conversions to designated Roth accounts (Notice 2010-84). The instructions to Form 8606 say that the same election applies to conversions of traditional IRAs to Roth IRAs and to conversions of qualified retirement plans to Roth IRAs. [Watch the language carefully. The IRS is distinguishing between the conversion of a qualified retirement plan to a Roth IRA and and the in-plan conversion of a qualified retirement plan to a designated Roth account.] The IRS has a FAQ on their website saying that the in-plan election applies to all in-plan conversions to designated Roth accounts but I have been unable to find anything which directly addresses the questioner’s situation.
The FAQ says that a second 8606 is required if different elections are made for the conversion of a qualified retirement plan to a Roth IRA and for the in-plan conversion to a designated Roth account.
Permalink Submitted by Alan Spross on Fri, 2011-01-14 21:22
That’s correct that a different election can be made for an in plan conversion vrs the other two types. This is stated clearly in 2010-84, but the Form 8606 Inst concur without clearly stating the point. This may be why a different 8606 is needed for an in plan conversion when a QRP to Roth IRA conversion is also done. At one point in the Inst, it states that the same election must be made for conversions to Roth IRAs, but no mention of the in plan conversion also having to follow suit.
Possibly, the reason that the in plan conversion tax year election can differ from the other two types of conversions is the lack of provision in the Sept Jobs Act to require these to follow suit. Otherwise, this just seems like a totally unnecessary inconsistency.
I think you were also commenting on the lack of specific guidance stating that the same tax year election must be made for all of one’s 2010 Roth IRA conversions, despite complete agreement on that point among IRA experts. On the IRS site it states that 2010 Roth conversions are reported in 2011 and 2012 UNLESS taxpayer opts to report the ENTIRE AMOUNT in 2010. Perhaps use of “entire amount” is instructive as it would eliminate deferring some conversions and opting out on others. But the Form 8606 instructions are very clear in that you either check a box to opt out of the deferral or all conversions are deferred. In this case, there is only ONE 8606 per taxpayer, so there would be no option to report different conversions differently. The IRS should have put a clear note in the 8606 Inst that the in plan conversion is not required to be reported in the same years as IRA conversions, but they did not do that.
Permalink Submitted by Peter Lingane on Sat, 2011-01-15 03:02
Thank you for confirming that everyone is guessing as to whether separate elections are permitted for multiple conversions to a Roth IRA.
Permalink Submitted by Alan Spross on Sat, 2011-01-15 04:05
But the design of the 8606 makes it impossible to treat IRA to Roth IRA and QRP to Roth IRA conversions differently. You must either check the box for both opting out or leave the box unchecked on line 19 and 24. 19 and 24 must also make the same election according to the Form and the Instructions. You can only attach a separate 8606 for in plan conversions and make a different election than you do for the Roth IRA conversions. But a spouse can make a different election since the spouse must attach a separate 8606.