RMD after prior year conversion
Can’t seem to find any guidance on this fact pattern:
100% 2011 conversion is done and partially recharacterized in 2012. 12/31/11 balance was zero, but due to the recharacterization there is now a balance and account holder is over 70 1/2. Is this a loophole where no RMD is possible?
Brian
Permalink Submitted by Alan Spross on Fri, 2012-11-30 03:55
There is a special provision referred to as “outstanding rollovers and recharacterizations” on p 32 of Pub 590.
In this situation the valuation must be restored to the prior year 12/31 balance and the RMD for the present year is based on the usual RMD calculation. The amount that is restored to the 12/31 account balance is the earnings adjusted amount, ie the actual amount that migrates back to the TIRA at the time of the recharacterization. No attempt should be made to determine what that value would have been on 12/31 based on the Roth conversion value on that date.
I think there was a time in the early days of IRA that people were using this strategy to avoid RMDs. Before Roths, they would take a distribution out prior to 12/31 and after 60 days roll it over to another IRA or back to the original account.
In your case here, if the person reached 70.5 in 2011 or earlier, the 2011 RMD should also have been taken prior to the conversion. So it’s possible that there are also 2011 RMD issues.
Permalink Submitted by BRIAN DALY on Fri, 2012-11-30 12:06
Thanks Alan..I did read Pub 590 (and that section) but glossed over it apparently. Happy holidays.
Brian