recharacterization during 60 day rollover and effect on RMD

Submitted by Jim Rueter on Sat, 2015-10-24 15:40

Needing a short term loan, I withdrew $50K from my TIRA intending to roll it over within 60 days. A few days later, I recharacterized a $20K Roth conversion for tax year 2014. I had already taken all of my RMD for 2015 except for the RMD for the recharacterized Roth. Now I want to roll the $50K back into a TIRA. Do I need to subtract the RMD for the recharacterized Roth from the rollover amount before I do the rollover? Thank you.



Submitted by Alan - IRA critic on Sat, 2015-10-24 18:11

  • Yes. Increase the 12/31/2014 balance by the amount that transferred back to the TIRA (not the amount you converted) when you recharacterized the conversion. Then re figure your increased 2015 RMD and then subtract the remaining RMD amount from the amount you roll over to complete the 60 day rollover.
  • Note that under the new 2015 rules you can only do ONE 60 day rollover for all your IRA accounts combined (conversions do not count) within a 12 month period. Therefore, you cannot roll over any more distributions for 12 months after your 50k distribution. Also be sure to complete your RMD before doing any conversions of additional amounts.

Submitted by Jim Rueter on Sat, 2015-10-24 23:35

I thought that you have to pretend like your Roth IRA conversion never happened and adjust your prior year-end balance accordingly, ie adjust by the converted amount, not the amount transferred back at recharacterization time.  See item 6 on:https://irahelp.com/slottreport/avoid-50-rmd-penalty-asking-these-10-questions-year-end

Submitted by Alan - IRA critic on Sat, 2015-10-24 23:52

Note that 6 is different than 5. For the outstanding rollover (5), just the amount distributed is added back. But for recharacterized conversions, the Report should have further defined “adjusted appropriately”. The IRS Reg copied below (1.408-8, Q&A 8 b) is clear that the the amount converted plus or minus net income is the amount added back. This is the amount that is actually transferred back to the TIRA and shows on the 1099R. There is no attempt to determine what that amount would have been on 12/31 which would require an additional calculation. Here is the the Reg:

(b) Recharacterizations. If an amount is contributed to a Roth IRA that is a conversion contribution or failed conversion contribution and that amount (plus net income allocable to that amount) is transferred to another IRA (transferee IRA) in a subsequent year as a recharacterized contribution, the recharacterized contribution (plus allocable net income) must be added to the December 31 account balance of the transferee IRA for the year in which the conversion or failed conversion occurred.

Submitted by Jim Rueter on Thu, 2015-10-29 15:26

When I did the Roth conversion last year, I rolled it into a brand new Roth, so the conversion amount was the starting balance.  Can I just use last year’s ending Roth balance to calculate the RMD due from its recharacterization this year?

Submitted by Alan - IRA critic on Thu, 2015-10-29 19:35

If you are referring to the year end balance on 12/31, no. But if you are referring to the final balance in the Roth account, that will also be the amount that transfers back to the TIRA and is the correct balance to add to your year end balance of all TIRAs to re calculate the RMD. Of course, this assumes you did a complete recharacterization of the conversion, not a partial.

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