Part of RMD Missed, followed by Roth Conversion
I’m not sure quite how to handle this one. I have a client who missed taking a portion of their 2021 RMD, though he thought he had fully satisfied it. He then completed a Roth conversion. We uncovered the missed RMD this year but unsure how to correct the issue. Any ideas would be much appreciated. Thank you!
Permalink Submitted by Alan - IRA critic on Tue, 2022-01-25 17:48
Assuming the client only has one IRA, the conversion distribution (if large enough) will satisfy the remainder of the 2021 RMD. However, the amount of the RMD remaining was not eligible for rollover and therefore must be treated as an excess Roth IRA contribution. The custodian should be provided with the amount of that excess and asked to treat it as an excess regular Roth contribution and return it with allocated income. Any gains will be taxable in 2021, so this correction should be completed before filing the 2021 return.
This will not be costly (just tax on the amount of gains on the excess Roth contribution), but will become a tax filing challenge since the conversion 1099R cannot be reported as issued. Only the allowed amount of the conversion can be reported on Form 8606 as a conversion. The rest is simply a taxable RMD, and this will have to be explained to the IRS with an explanatory statement attached to the 2021 return.
Permalink Submitted by Michael Frontera on Tue, 2022-01-25 19:03
Thank you very much – that makes sesne