by Barry C. Picker, CPA/PFS, CFP
© 1998, Barry C. Picker
The following copyrighted article is available exclusively on the Roth IRA Web Site:
There has been some discussion about individuals who turn age 70½ in 1998, and wish to convert their traditional IRAs to Roths. It has been suggested for such taxpayers to postpone their initial required minimum distribution until the beginning of 1999 (prior to April 1st) in order to stay under the $100K income limitation for conversion in 1998.
PLEASE BE ADVISED that the IRS' position on this issue is that you CANNOT postpone the required minimum distribution and convert your traditional IRA to a Roth. This is made very clear in Prop Reg 1.408A-4, Q&A-6. You MUST take your required minimum distribution prior to conversion.
In Prop Reg 1.408A-4, Q&A-1, A-1(c), the regulation states that even if the conversion from a traditional IRA is accomplished by means of a trustee to trustee transfer, it is a qualified rollover for purposes of both Sec 408 and Sec 408A. By being a rollover, and not a trustee to trustee transfer, the rule of Sec 408(d)(3)(E) which prohibits the rollover of a required distribution is applicable.
I personally disagree with the IRS on their position, mainly because a minimum distribution is not required until April 1st of the year following the attainment of age 70½. However I have yet to find a taxpayer willing to be the test case to litigate this issue.
It is important, at the least, for taxpayers to be aware of this issue prior to
converting their IRAs. Anyone who has already done the conversion, can go ahead and
recharacterize their transfer back to a traditional IRA. Otherwise, if the IRS prevails in
their position, the money in the Roth IRA will be deemed to be an excess contribution,
subject to the 6% excise tax imposed by Sec 4973.
The Author:
Barry C. Picker is a Certified Public Accountant with the Personal Financial Specialist
designation, and is a Certified Financial Planner licensee. He runs his own accounting and
financial planning firm located in Brooklyn, NY, and is also a member of the NYS Society
of CPAs Estate Planning Committee. He has taught seminars and written articles on tax
topics, and has been quoted in various publications. In addition, he is part of a panel
that answers tax questions on America Online at keyword:TaxLogic. He can be reached at
(718) 934-4300, or via E-Mail at BPickerCPA@cs.com.