The 10-Year Rule and Roth Conversions: Today’s Slott Report Mailbag

Thursday, December 22, 2022

By Sarah Brenner, JD
Director of Retirement Education
Follow Us on Twitter: @theslottreport

Question:

Ed, I started reading your newsletter and I wondered what you thought of  IRS Notice 2022-53. It made sense to me to the point where it said that “the beneficiary of an employee who died after the employee’s required beginning date must take the RMD beginning in the first calendar year after the calendar year of the employee’s death.”

But then in the end they lost me when it says it applies only if the employee died in 2020 or 2021. Seems like it should say 2022 as well.

This is of concern to me because I don’t want to take the RMD this year, and my dad died this year leaving me his IRA in respect of which he had started taking RMDs.

Regards,

Bret

Answer:

Hi Brett,

The IRS issued Notice 2022-53 in response to confusion created by the proposed regulations that require annual required minimum distributions (RMDs) during the 10-year payout period under the SECURE Act. This rule took many by surprise, so the IRS waived the rule for those who inherited in 2020 or 2021.

Your situation is a little different. Your dad passed away this year, so a different rule applies to you in 2022. That is the rule that says that if the IRA owner died before taking his entire RMD for the year of death, then the beneficiary must take it. Unfortunately, the IRS guidance does not help with this rule. The 10-year rule will not start for you until next year (the year after your father’s death). At that point hopefully the IRS will have clarified whether RMDs are required during the 10-year period.

Question:

Hello,

I found you via Google search!

I converted an IRA investment worth over $200k to a Roth IRA investment in December 2021 and paid taxes on the same. As you know, markets have been brutal and investments are worth far less.

I learned only this week that the conversion could be reversed via recharacterization by a deadline (which I believe was October 15) or I could apply for a private letter ruling from the IRS. Since October 15 was not so long ago, is there a way to reverse the Roth investment back into the IRA and save on taxes?

Thank you.

Answer:

Unfortunately, a missed deadline is not the problem here. As part of the Tax Cuts and Jobs Act of 2017, Congress ended recharacterization for conversions in 2018 and later. This remedy is no longer available for unwanted conversions.

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