401K rollover/conversion to Roth IRA
Sir/Madam,
I have a client who is normally a high income earner but 2013 has been a low income year for him. His CPA and I advised him to roll/convert a $60,000 401(K) into his Roth IRA this year.
We began this process two weeks ago and I’m clear that the DISTRIBUTION has to take place before 1/1/2014 so it can count as 2013 income.
My question relates to the timing of the CONTRIBUTION into his Roth IRA. Does this need to take place before 1/1/2014?
My understanding is that the timing of this doesn’t matter, but I seek your expert advice.
Thanks in advance,
Chris
Permalink Submitted by Alan - IRA critic on Sun, 2013-12-22 18:09
Chris, the contribution to the Roth IRA does not need to occur by year end for the Roth rollover to be included in 2013 income. The plan must issue a 2013 1099R to report the distribution, which is the key. If the contribution is received by the IRA custodian for any reason after 12/31, the income reporting year is not affected, but the rollover for purposes of the 5 year holding period if client is not yet 59.5 will be reported on a 2014 5498 form. That means that the 5 year holding period to avoid penalty in the event of distribution of this amount from the Roth IRA will start 1/1/2014 rather than a year sooner.