Excess contribution of Roth conversion
Taxpayer withdrew approx $600,000 from IRA and had 30% withheld. He now
wants to convert the balance to a ROTH. (He is within the 60 day rollover time limit,
70.5+ yrs old, not working). He says he now has other money to pay the tax. Can he
add this money to the balance to increase his ROTH converison? (Keeping in mind he cannot
convert his 2013 RMD). Or would this be considered an excess contribution?
Permalink Submitted by AdvantaIRA Team on Wed, 2013-07-17 17:47
As long as he is in the 60 day time frame he can put funds back into his IRA without this being considered an excess contribution, assuming he does not put back his RMD amount and in excess of $600,000.
Permalink Submitted by Mary Jean Wenzel on Wed, 2013-07-17 20:49
Need to make sure I understand….$600,000 distribution from traditional IRA with $180,000 tax withheld. Taxpayer now wants to convert his balance of $420,000 plus another $100,000 into a ROTH. This is not an excess contribution as long as he does not convert his RMD or go over $600,000.
Permalink Submitted by Alan - IRA critic on Wed, 2013-07-17 21:27
Yes. For example, if his RMD is 50k, he can add 130k of outside funds to the 420k and roll them into a Roth IRA within 60 days. He then has a 550k conversion and 50k for his RMD that is not converted, plus 180k of tax payments held in the IRS to apply to his tax return. Generally, it is best to avoid withholding on a conversion distribution, but the one advantage of it is avoiding underpayment penalties since withholding is deemed paid equally throughout the year. Quarterly estimates are only deemed paid when they actually are paid.