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Converting an IRA to a Roth IRA and Satisfying RMDs: Today’s Q&A Mailbag

Question:

I wondered if it’s possible to convert my traditional IRA to a Roth for 2017 and prior years, and then file an amended return?
At least I could offset the higher taxes paid going forward, knowing I will have a tax-free Roth?
Thanks very much for your help and thanks for all the provocative, timely advice.
Sean

 

Answer:

Hi Sean,
When it comes to Roth IRA strategies, it can pay to be creative. However, as with all tax planning, there are some limits. Unfortunately, your proposal of doing a conversion now for 2017 and amending your return, will not work. The rules are very clear that a conversion for a year must be done in that year. Remember, not only are you reporting a conversion on your tax return, but your IRA custodian is doing reporting to the IRS as well. For a conversion to be taxable for 2017, it would have to be reported on a 2017 Form 1099-R. That’s just not going to happen if you do a conversion now.

Question:

Hello,
I have a client who turns 70 1/2 this year (birthday 5/4/48).  He has a $2m 401k that he has not rolled into an IRA for purposes of taking a QCD.  Is it too late to roll into an IRA without getting stuck with the plan administrator requiring that the RMD must first be satisfied before rolling to an IRA. Therefore, he is stuck and cannot do a QCD for 2018?
If you should have any questions, please do not hesitate to contact me.
Best regards,
Kent

Answer:

Hi Kent,
Your client will be 70 ½ this year. That means that unless an exception, such as the still-working exception, applies, he has an RMD from his 401(k) for 2018. The rules do say that the first money that is paid out of a 401(k) in a year, when an individual has an RMD, would be considered the RMD. An RMD cannot be rolled over to an IRA. Unfortunately, this means that there is no way that your client can satisfy this RMD by doing a QCD from an IRA for 2018. The good news is that if the remaining 401(k) is rolled over this year, beginning in 2019, QCDs can be done to satisfy future IRA RMDs.
https://www.irahelp.com/slottreport/converting-ira-roth-and-satisfying-rmds-todays-qa-mailbag

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