Permalink Submitted by Jose Morales on Tue, 2011-04-12 16:21
Actually, he did take his RMD in 2010. What you have now is a portion of the conversion that was ineligible for rollover to a Roth. The individual will want to remove this “excess” from the Roth along with any earnings attributable before they file their taxes for 2010.
Permalink Submitted by Wendy Mommaerts on Tue, 2011-04-12 16:43
[quote=”[email protected]“]Actually, he did take his RMD in 2010. What you have now is a portion of the conversion that was ineligible for rollover to a Roth. The individual will want to remove this “excess” from the Roth along with any earnings attributable before they file their taxes for 2010.[/quote]
Are there any IRS forms that need to be completed?
Permalink Submitted by Alan Spross on Tue, 2011-04-12 17:26
The solution is fairly easy as posted. However, the reporting is anything but because the IRA custodian will report a full conversion on Form 5498.
For 2010, on Form 8606 only report the allowed conversion, ie. the total distribution less the amount of the RMD. The RMD is fully taxable in 2010 while the conversion shown on the 8606 can be deferred to 2011 and 2012. Since the RMD was added to the Roth, it is considered as an excess regular contribution to the Roth IRA UNLESS client was eligible to make a regular Roth IRA contribution. The actual excess contribution must be removed ASAP with any earnings allocated to the excess amount. The earnings will be taxable in 2010 on line 15b. An explanatory statement should be included with the 2010 return when it is eventually filed.
In correcting the excess contribution, tell the custodian that the RMD portion rolled to the Roth must be treated as an excess contribution for 2010 and returned with earnings. This will produce the correct coding for that 1099R received next January. There will be no need to report any of this on the 2011 return unless of course half the conversion income is deferred to 2011.
Since it is 4/12, this likely means filing an extension for the 2010 return to prevent the need to amend it after the earnings amount is calculated. Client could try to get that earnings figure and still file by 4/18, but the chances are not good and therefore an extension will probably be needed.
Permalink Submitted by Jose Morales on Tue, 2011-04-12 16:21
Actually, he did take his RMD in 2010. What you have now is a portion of the conversion that was ineligible for rollover to a Roth. The individual will want to remove this “excess” from the Roth along with any earnings attributable before they file their taxes for 2010.
Permalink Submitted by Wendy Mommaerts on Tue, 2011-04-12 16:43
[quote=”[email protected]“]Actually, he did take his RMD in 2010. What you have now is a portion of the conversion that was ineligible for rollover to a Roth. The individual will want to remove this “excess” from the Roth along with any earnings attributable before they file their taxes for 2010.[/quote]
Are there any IRS forms that need to be completed?
Permalink Submitted by Wendy Mommaerts on Tue, 2011-04-12 17:16
Are there any IRS forms that need to be completed?
Permalink Submitted by Alan Spross on Tue, 2011-04-12 17:26
The solution is fairly easy as posted. However, the reporting is anything but because the IRA custodian will report a full conversion on Form 5498.
For 2010, on Form 8606 only report the allowed conversion, ie. the total distribution less the amount of the RMD. The RMD is fully taxable in 2010 while the conversion shown on the 8606 can be deferred to 2011 and 2012. Since the RMD was added to the Roth, it is considered as an excess regular contribution to the Roth IRA UNLESS client was eligible to make a regular Roth IRA contribution. The actual excess contribution must be removed ASAP with any earnings allocated to the excess amount. The earnings will be taxable in 2010 on line 15b. An explanatory statement should be included with the 2010 return when it is eventually filed.
In correcting the excess contribution, tell the custodian that the RMD portion rolled to the Roth must be treated as an excess contribution for 2010 and returned with earnings. This will produce the correct coding for that 1099R received next January. There will be no need to report any of this on the 2011 return unless of course half the conversion income is deferred to 2011.
Since it is 4/12, this likely means filing an extension for the 2010 return to prevent the need to amend it after the earnings amount is calculated. Client could try to get that earnings figure and still file by 4/18, but the chances are not good and therefore an extension will probably be needed.