IRA BASIS AND ROTH CONVERSIONS IN AN RMD YEAR: TODAY’S SLOTT REPORT MAILBAG

Thursday, June 30, 2022

By Ian Berger, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

I am 66 and would like to convert one of my IRAs to a Roth, but I am not sure if any of my old IRA accounts have any after-tax contributions. I have no records, so I assume they are all pre-tax but I am not sure. If I convert and pay taxes, does the IRS contact me regarding after-tax contributions if I ever made them?

Thanks

Mary

Answer:

Hi Mary,

Unfortunately, the IRS will not tell you whether you have any basis on account of making after-tax contributions. Instead, it’s solely up to you to establish that. You indicate that you have no records, but we suggest double-checking to see if you have copies of Form 8606 you may have filed with the IRS to claim basis. Also, you may be able to track down Form 5498 (issued by the IRA custodian to show account contributions) and then match up prior tax returns to see if you took a deduction for the IRA contribution reported on the form. If you can’t prove you have basis, you’ll have to treat all of your IRAs as pre-tax.

Question:

Hello,

We have a client with an RMD of $100,000. We also believe they should do a Roth conversion of $200,000. If they are looking to execute their Roth conversion now while their portfolio is down, can they execute the $200,000 Roth conversion today, then wait to take their RMD of $100,000 in December of this year?

Thanks!

Best Regards,

Josh

Answer:

Hi Josh,

Sorry, that won’t work. When an RMD is due in a particular year, the first dollars distributed from an IRA in that year are treated as the RMD, and RMDs can’t be rolled over. When a person does a conversion, it’s considered both a distribution and a rollover. So, the RMD must be satisfied first. After that, any amount over and above the RMD can then be converted.

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