Multiple Indirect Roth Conversions and Custodial Push Back

Submitted by Jimmy Rench on Fri, 2015-09-11 21:00

I hate to bring up this issue again, but I am getting push back from a custodian. I have a client who is in the process of buying a new home, while she is selling her old home.

The lender required that she pull money from her IRA. We took two distributions. On distribution was on July 21st in the amount of $7,693. The second distribution was on August 21st in the amount of $7,300. We are attempting to do an indirect Roth IRA conversion of both amounts. In reading publication 590 and the rules regarding 1 60-day rollover per year, I didn’t foresee any issues doing multiple indirect Roth IRA conversions.

One more piece of information, we will take a $75,000 distribution from the IRA for a down payment. That will be our one 60 day rollover per year. That will occur on Sept 15. House will be sold and proceeds will reimburse the IRA.

Today I called the custodian to see if they needed any specific instruction to be included with the check. They informed me that since there had been multiple withdrawals that we could only return the last one to the Roth IRA as an indirect conversion. Rep said that the 60 day rollover only applies to the last withdrawal. I tried to explain that Roth IRA conversions (direct and indirect) are exempt from that rule. Still she insisted that only the last withdrawal could be returned.

She was very adamant about it. She even said that she confirmed it by speaking to someone else that had been working in the back office 8 years. I responded, well this is new tax law for this year. Did I miss something or is there a magical phrase or password that I need to use?

I would appreciate any help or insight. If I am wrong, definitely want to know so I don’t cause issues for the client.



Submitted by Alan - IRA critic on Fri, 2015-09-11 22:02

  • As long as the two distributions were from a NON Roth IRA, they can both be converted to a Roth IRA and neither would count as a rollover. A conversion has never counted against the one rollover rule, either the prior rule or the new rollover rules for 2015. However, am not sure what you meant by “she said only the last withdrawal could be returned”. Was one of the withdrawals from a Roth IRA? A distribution must be from a non Roth IRA in order to be converted.
  • The following is copied from p 44 of Pub 590A: ConversionsYou can convert a traditional IRA to a Roth IRA. The con-version is treated as a rollover, regardless of the conver-sion method used. Most of the rules for rollovers, descri-bed in chapter 1 underRollover From One IRA Into Another, apply to these rollovers. However, the 1-year waiting period does not apply. 

  

Submitted by Jimmy Rench on Fri, 2015-09-11 22:49

That was the exact section that I was reading from pub 590A.  Both withdrawals did come from a NON Roth IRA.  Roth account was setup up two weeks ago and is unfunded.   I suppose there was a disconnect in her mind.  Money was taken out of an IRA, thus it had to automatically be a distribution.  And since there were two “distributions”, only the second one was eligible to be “a rollover” into an account.  Only problem was that the client wasn’t taking a distribution and wasn’t looking to do a 60 day rollover.   As an advisor, I truly appreciate the forum and your insight.  It is frustrating that so many people that are helping clients (and advisors) are uninformed on the rules.  I have had to tell several clients not to go to the Social Security office because the quality of the advice is a crapshoot at best.  I wonder if I need to give fellow advisors and clients the same warning when it comes to IRA rollovers? I seriously had one rep tell me that I had to put the money back into the IRA before the client could convert.  Thanks again.

Submitted by David Mertz on Fri, 2015-09-11 23:05

If this custodian continues to resist, the client could find a different custodian to accept the Roth conversion of one or both of the traditional IRA distributions.  The 60-day deadline for performing the conversion of the July 21 distribution is only a week away.

Submitted by Alan - IRA critic on Fri, 2015-09-11 23:29

Technically, these ARE 60 day rollovers. But as conversions they are exempt from the one rollover limitation.

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