CARES Act & Roth Conversion

Submitted by Randy Kolenda on Tue, 2020-09-22 21:06

Client took 2020 RMD in January & decided to turn it into a Roth conversion with the after-tax portion, before the Aug 31 deadline. Client submitted a check for a portion of the conversion and requested that the remainder of the conversion be transferred from a taxable accout held with me. I failed to execute the internal transfer before the deadline.
I have read about other IRA contribution/RMD situations that if a deadline is missed at the fault of the advisor or custodian, after the client provided timely instruction, the action (in this case a Roth conversion) can still be carried out if the advisor provides a letter acknowledging that instructions were provided on time. The letter would be included with client’s tax return.
Any thoughts?



Submitted by Alan - IRA critic on Tue, 2020-09-22 22:36

  • Plenty of questions – was the distribution from an IRA?  Apparently the distribution was partially after tax and the intent was to convert that portion only to a Roth IRA, correct?  What about the rest? What is the actual status of this right now, was nothing deposited by 8/31?  Generally speaking, there is no relief for advisor error, but if the custodian mishandles they may have some leeway to make corrections which is not public info. 
  • Notice 2020-51 required that an amount that would have been an RMD for 2020 could be returned to the distributing IRA account only if distributed from an IRA. If the distribution was from an employer plan it could be rolled into any eligible plan by 8/31. Therefore, the issuing account is key.

Submitted by David Mertz on Wed, 2020-09-23 03:41

  • To be able to roll over only the after-tax portion to a Roth IRA, the RMD could only have come from a qualified retirement plan, not from an IRA.
  • If the distribution was instead from an IRA, the rollover to the Roth IRA, had it been completed, would have consisted of a proportionate mix of pre-tax and after-tax funds which would be calculated on 2020 Form 8606.  It would also have had to have been completed within 60 days of receipt of the distribution (by sometime in March) since it was not being returned to the distributing IRA.

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