What is the Magical End Date to Make a 2014 Roth Conversion?

By Joe Cicchinelli and Beverly DeVeny
Follow Me on Twitter: @theslottreport

This week’s Slott Report Mailbag examines some key IRA questions, especially as we creep ever closer to year-end. What is the magical end date to make a 2014 Roth conversion? Can I take the total of my RMDs (required minimum distributions) from one IRA? And finally, we touch on a key planning point involving inherited IRAs and trusts. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

1.

Dear Ed and Associates, 

Do I have until April 15 to convert some of the monies in a Traditional IRA to a Roth IRA or does that conversion need to be completed by the end of the calendar year, Dec 31, 2014?

Thanks,

Matt McCall

Answer:
The conversion is taxable in the year the money leaves your Traditional IRA, so you cannot do a conversion up to April 15, 2015 and have it count as a 2014 conversion. If you want to do a conversion for 2014, the funds must leave your Traditional IRA no later than December 31, 2014. The funds do not need to be in the Roth IRA by December 31, but they must be out of the IRA account by that date.

2.

I reach age 70 ½ this month. I have two Traditional IRAs containing stocks and cash and two Individual Retirement Annuities apart from the accounts.

The annuities are not annuitized. I am not planning to annuitize them, but instead want to start taking the Minimum Guaranteed Withdrawal when it stops increasing in four years. Any year I take a withdrawal, the Minimum Guaranteed Withdrawal amount does not increase, so I don’t want to take a withdrawal for four years.

My question is, “Can I take the total of the RMDs from one of the IRAs, and by doing so, satisfy my RMD for all of the accounts and annuities?”

Gary

Answer:
Yes. As long as your annuities have not annuitized, you can take the total of the RMDs from one of the IRAs. Note that the fair market value of all your IRAs, including your IRA annuities, must be included when calculating the total RMDs. The fair market value of the annuities must include a value for any riders or guarantees that the annuity may have.  

3.

I’m trying to get some answers regarding the transfer of an inherited IRA to a Special Needs Trust without triggering a major tax event. I have a lot of differing answers on this question and it’s imperative I get it right. I’m responsible for a niece, who is disabled in a nursing home (38 years old) and inherited an IRA from her Mother when she died. We want to put it in the Trust and make the state one of the beneficiaries so they can get their money back, or at least some of it, when she passes or gets better and leaves the nursing home. I have not been able to get a straight answer even from some lawyers.

I hope you can help me.

Thank you,

Althea Boyett

Answer:
While we cannot answer your question adequately in this space, we wanted to include it to emphasize that an IRA can never “go into a trust.” That is a fully taxable event. A trust can be named as the beneficiary of an IRA; it can never own an IRA.

 

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