Conversion from traditional to ROTH IRA

[rlennon]

Client took RMD of 24K from one IRA account.  Realized he could covert to ROTH instead of taking RMD.  RMD was shipped to his primary (major) money management firm.  This account (Primary) has (1) taxable spending account, (1) each TRADITIONAL IRA for him and spouse, and (1) each ROTH account for him and spouse Asked his primary account manager upon receipt of RMD in joint taxable account if they could directly transfer the 24K amount into a ROTH instead.  Primary account received 24K RMD into joint taxable account, and immediately (within 1 hour) transferred 24K into their traditional IRA, and then, same day, transferred 24K into ROTH IRA.  He received 2 Forms 1099-R.  The first (24K) was from the original Traditional IRA Account in the first firm.  He then received a second Form 1099-R from his primary account for 24K for the same amount of money.  He thinks he is double-taxed.  Any ideas on how to document this?  (I am afraid I know the answer.)

[pamdory]

It sounds like the first IRA distribution was an indirect rollover, entered on screen13.1 in the Rollovers section > Indirect Rollovers > To other than a Roth IRA.

Then enter the second 1099-R and enter the rollover amount in the Form 8606 section > Conversions to Roth IRA.

BUT - My understanding is that an RMD cannot be converted into a Roth.  From Pub 590-A

Required distributions. 

You can’t convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 72) under the required distribution rules (discussed in Pub. 590-B).

[rbynaker]

I'm not sure what tax year we're talking about.  For 2020 there were no RMDs, so this strategy works for that but not for most years.

Rick

[pamdory]

EXCELLENT CATCH!

Thank you!

[qbteachmt]

"For 2020 there were no RMDs, so this strategy works for that but not for most years."

As long as there was not a Conversion. The ability to make a Redeposit of the RMD as if that is a rollover requires that to be the same Nontaxable event as any other Rollover.

"Realized he could covert to ROTH instead of taking RMD."

That was never changed, and that is not changed or covered by CARES.

"RMD was shipped to his primary (major) money management firm."

Put into Investment account = he took the distribution.

"This account (Primary)"

It's more like a Customer Profile. You still work by Actual Account. They are not combined or intertwined. You cannot have a Joint IRA, for example, but that MM is likely Joint.

"and then, same day, transferred 24K into ROTH IRA."

Not CARES related.

"He received 2 Forms 1099-R. The first (24K) was from the original Traditional IRA Account in the first firm."

You show that as a regular rollover. You have to address any withholding, though. Was the RMD rolled in Gross or Net?

"He then received a second Form 1099-R from his primary account for 24K"

There is no "Primary" account. There is that Reporting Entity.

"for the same amount of money. He thinks he is double-taxed."

He hasn't been Taxed. That's why I asked about Withholding. He prepaid. That isn't Tax, yet.

"Any ideas on how to document this? (I am afraid I know the answer.)"

You need to address the amount distributed vs rolled/conversion.