Roth Conversion Basics

Question 0

What is the deadline for a Roth Conversion?

Answer 0

December 31 of the year for which the conversion is intended.

Question 1

What is the name of the Schwab form used to re-characterize a Roth conversion or Traditional IRA contribution (to Roth status)?

Answer 1

The Schwab “Request a Recharacterization or Remove an Excess Contribution” form.

Question 8

True or False

A Roth Conversion, Re-characterization, and Re-conversion can not all occur in the same year.

Answer 8

True.

If the re-characterization is done in the same year as the conversion, then the law requires you wait until January 1 of the following year.

If you convert one year, and re-characterize early the next after 30 days you can reconvert.

In no case can all three events occur in the same calendar year.

Question 9

T or F

IRA owners who are 70 1/2 or older and who want to execute Roth conversions can simply direct their RMDs directly into a Roth

Answer 9

False

As outlined in IRS publication 590-A, directing RMDs to a Roth IRA (or any other tax-advantaged retirement plan) is always prohibited. If the IRA owner wants to convert, it will have to be a completely separate transaction.

Question 10

For a Roth conversion analysis, what two tax/financial variables (beyond the marginal tax rate) does Ed Slott recommend evaluating?

Answer 10

When doing conversions be alert for changes in IRMAA and Qualified Business Income (199A )

Get Accountant involved in QBI questions.

Question 11

Beyond the long-term tax advantage of a Roth conversion, what other information do clients want as part of a conversion analysis?

Answer 11

The clients want to know how much a conversion costs not just that it is a good idea. We should be running the year with and without the conversion and providing the cost in taxes for the change. Ed Slott