IRA BASIS AND ROTH CONVERSIONS IN AN RMD YEAR: TODAY’S SLOTT REPORT MAILBAG | Ed Slott and Company, LLC

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

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.


Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.

 

Find members of Ed Slott's Elite IRA Advisor GroupSM in your area.
We neither keep nor share your information entered on this form.
 

I agree to the terms and services:

You may review the terms and conditions here.