Direct Rollovers and Roth Conversions: Today’s Slott Report Mailbag

Question:

Hello,

I met Ed Slott at an FPA function where he spoke in Independence Ohio, several years ago. I have purchased books written by him, however I am not presently a subscriber to your service.

I would appreciate your response to a question.

*If a direct rollover is attempted by issuing a check payable to the custodian (In this case TD Ameritrade FBO the client), from a 401k retirement and profit sharing plan, is there a time limit in which the check must be deposited into the receiving TD Ameritrade account?

The reason I am asking the question is there is a numerous amount of contradictory written information pertaining to this and the “60 day” rule.  (I feel I have a good general understanding of the 60 day rule as it applies when checks are made payable to individuals rather than to the custodian.)

I would appreciate a specific, detailed answer if at all possible.

Thank-you very much for your time and consideration.

John

Answer:

IRS has issued several PLRs where they ruled that the 60-day period does not apply to checks that are made payable to a new custodian when the checks are not delivered within the 60-day period. You will be limited by the “stale date” period applicable to the check issued for the direct rollover.

Question:

Dear Mr. Slott

I’m 61, a resident of New York, and I plan to convert $20, 000 in my IRA to my Roth IRA in 2019.  I expect our MAGI will not exceed $189k in 2018. Will this conversion qualify for the New York State tax exclusion?  I understand the federal taxes will be due.  My goal is to take advantage of the exclusion and convert to Roth each year prior to reaching my RMD.

Thank you for taking the time to read this e mail.

Answer:

While we do not usually answer state tax questions as we cannot know the tax rules in all 50 states, you are in NY State which is where our office is. The distribution of $20,000 for your conversion should be exempt from state income tax under NY State’s exclusion rule. If your tax return is on a computer, we recommend that you wait until later in the year, pull up your prior year’s return and add the conversion amount to it, then print out the return to see the approximate effect of your conversion on your total tax bill. Because of the federal tax law changes, the newly printed return may not accurately reflect the effect of the conversion on your federal taxes, but it should be a closer approximation of your state tax situation.