Does a Roth Conversion need to be completed by Dec. 31

Submitted by Amanda Minter on Wed, 2020-12-23 16:02

Does a Roth Conversion need to be fully completed by the end of the year. Or if you take an IRA distribution on Dec. 31 would you have 60 days after to get it into the Roth?



Submitted by David Mertz on Wed, 2020-12-23 16:52

  • The Roth conversion is reportable and taxable on the tax return for the year in which the distribution from the traditional IRA occurs, so if the distribution occurs by December 31, 2020, reported on a 2020 Form 1099-R, the Roth conversion will go on the 2020 tax return, even if the conversion contribution is not made to the Roth IRA until early 2021.
  • If this is the individual’s first Roth contribution (either by conversion or rollover contribution), the 5-year clock for qualified distributions begins at the beginning of the year in which the deposit to the Roth IRA is made.  If that deposit is made in 2021, distributions from the individual’s Roth IRAs will not be qualified distributions until at least 2026 (depending on whether the individual also satisfies the age, disability or death requirement).  § 408A(3)(F)(i)(II) also dictates the 5-year Roth-conversion clock starts with the beginning of the year in which the conversion contribution is made, not the year in which distribution from the traditional IRA occurred.  (I suspect that most tax software gets this wrong, instead mistakenly treating the 5-year conversion clock, and maybe even the 5-year qualified-distribution clock, as starting with the year of the distribution.  IRS Pub 590-B is also not entirely clear on this, but is correctly applied in the example that Pub 590-B provides for the application of the 5-year conversion clock.)

Submitted by Alan - IRA critic on Wed, 2020-12-23 19:01

For the second bullet point, regular Roth contributions should not be included. If the 5 year clock was started by a regular contribution, it would be the year “for which” the contribution is made, not “in which”.

Submitted by David Mertz on Wed, 2020-12-23 21:04

So edited.  Thanks.

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