Parts of the Joint Explanatory Statement of the Committee of
Conference for H.R. 2676, the
Internal Revenue Service Restructuring and Reform Act of 1998, that reference Roth IRAs
3. SAVINGS INCENTIVES OF THE 1997 ACT
Conversion of IRAs into Roth IRAs: Under the Senate amendment, in the case of conversions
of IRAs into Roth IRAs, the taxpayer is able to elect to have the amount converted
includible in income in the year of the conversion (or the year of withdrawal if the
conversion is accomplished through a rollover) rather than ratably over 4 years. The
Senate amendment does not include the additional 10-percent recapture tax applicable to
premature withdrawals of amounts to which the 4-year spread applies. Instead, under the
Senate amendment, if an individual elects application of the 4-year spread and withdraws
amounts before the entire amount of the conversion has been included in income, the amount
withdrawn is includible in income (in addition to any amount required to be included under
the 4-year spread). In no case will the amount includible under this provision exceed the
amount converted. The Senate amendment does not include the rules in the House bill
regarding separate accounts for converted amounts and instead includes ordering rules for
determining the character of withdrawals from Roth IRAs.
Under the Senate amendment, a new 5-year holding period for determining whether
distributions from a Roth IRA are qualified distributions does not apply to converted
amounts. Thus, the 5-year holding period begins with the year for which a contribution
(including a rollover contribution) was made.
The Senate amendment also clarifies calculation of adjusted gross income for purposes of
applying the $100,000 adjusted gross income ('AGI') limit on individuals eligible to
convert IRAs to Roth IRAs. Under the Senate amendment, the applicable AGI is AGI for the
year of the distribution to which the conversion relates. In addition, under the Senate
amendment, it is intended that in determining AGI, the conversion amount (to the extent
otherwise includible in AGI) is subtracted from AGI for the year of the distribution.
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2. SAVINGS AND INVESTMENT INCENTIVES OF THE 1997 ACT
Conversion of IRAs into Roth IRAs: The conferees wish to clarify that for purposes of
determining the $100,000 adjusted gross income ('AGI') limit on IRA conversions to Roth
IRAs, the conversion amount is not taken into account. Thus, for this purpose, AGI (and
all AGI-based phaseouts) are to be determined without taking into account the conversion
amount. For purposes of computing taxable income, the conversion amount (to the extent
otherwise includible in AGI) is to be taken into account in computing the AGI-based
phaseout amounts. The conferees wish to clarify that the language of the Senate Finance
committee report (appearing in connection with section 6005(b) of the Senate amendment)
relating to
calculation of AGI limit for conversions is superceded.
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H. EXCLUSION OF MINIMUM REQUIRED DISTRIBUTIONS FROM AGI FOR ROTH
IRA CONVERSIONS (SEC. 5008 OF THE SENATE AMENDMENT)
Under present law, uniform minimum distribution rules generally apply to all types of
tax-favored retirement vehicles, including qualified retirement plans and annuities,
individual retirement arrangements ('IRAs') other than Roth IRAs, and tax- sheltered
annuities (sec 403(b)).
Under present law, distributions are required to begin no later than the individual's
required beginning date (sec. 401(a)(9)). In the case of an IRA, the required beginning
date, means the April 1 of the calendar year following the calendar year in which the IRA
owner attains age 70 1/2 . The Internal Revenue Service has issued extensive Regulations
for purposes of calculating minimum distributions. In general, minimum distributions are
includible in gross income in the year of distribution. An excise tax equal to 50 percent
of the required distribution applies to the extent a required distribution is not made.
Under present law, all or any part of amounts in a deductible or nondeductible IRA may be
converted into a Roth IRA. Only taxpayers with adjusted gross income ('AGI') of $100,000
or less are eligible to convert an IRA into a Roth IRA. In the case of a married taxpayer,
AGI is the combined AGI of the couple. Married taxpayers filing a separate return are not
eligible to make a conversion.
The Senate amendment excludes minimum required distributions from IRAs from the definition
of AGI solely for purposes of determining eligibility to convert from an IRA to a Roth
IRA. As under present law, the required minimum distribution would not be eligible for
conversion and would be includible in gross income.
Effective date: The provision is effective for taxable years beginning after December 31,
2004.