Roth Conversion Accounts - Recordkeeping

[user5027]

I did when the IRS allowed you to recharacterize a Roth conversion up until October of the following year. You needed to include any gain/loss in the conversion being recharacterized and the work was much easier without comingling the conversion with other Roth funds. You could do a horse race between different assets, undo the poorest performer(s), and complete your taxes while figuring the optimal conversion amount to the dollar, without a lot of assumptions.

The law has changed and I have no need to now.

I've consolidated the couple Roth accounts I had.

 

[SecondCor521]

There is a difference between what is and what might be. According to the IRS.gov website:

Fair enough to say, it is a mess of rules that are difficult to find, let alone determine what is currently in effect, proposed and in discussion, enacted but delayed implementation, etc. My head hurts when going thru this subject. I do need to get this worked out before the end of the year. I may just surrender, close out the relatively small inherited IRA and call it done. maybe that is the IRS's intended action.

It's convoluted.

Yes, the IRS website is of course correct when they say that Roth IRAs are subject to the same RMD rules as traditional IRAs.

But the RMD rules for traditional IRAs say that the new owner is only subject to RMDs if the original owner died after their RBD. Otherwise, the new owner is not subject to RMDs.

Since Roth IRAs don't have RBDs, the original owner never dies after their (nonexistent) RBD. Therefore, the new owner is never subject to RMDs.

The above is at least true for my family's situation, which just involves able bodied people over 18 in three generations (my Dad, my sisters and I, and the grandkids). There may be other scenarios where the above is not true, but for what I consider to be a typical case, it is true.

Oh, and the quoted part of the IRS website also mentions one of the five year rules - that rule doesn't apply in our case because pretty much everyone in my family has had Roth IRAs for longer than that.

I'm not exactly sure why the law and regulations in this area are so convoluted. That's probably a discussion for another day and perhaps another forum as it might veer into politics.

Good luck to you in navigating it all.

 

[TheWizard]

What are RBDs?

 

[cathy63]

What are RBDs?

RBD = Required Beginning Date = IRS speak for the age at which you have to start taking Required Minimum Distributions from your retirement accounts other than Roth

 

[ncbill]

Currently there are no required annual RMDs under the Secure Act from inherited traditional/Roth IRAs if the previous account owner wasn't already required to be taking RMDs.

But they are still subject to the "must be emptied by end of the 10th year" rule.

 

[orbops]

Currently there are no required annual RMDs under the Secure Act from inherited traditional/Roth IRAs if the previous account owner wasn't already required to be taking RMDs.

But they are still subject to the "must be emptied by end of the 10th year" rule.

The key point here is that this applies to ones after the Secure Act 1.0 in 2020. My sister passed away in 2019, and I have an inherited IRA in which I have to take RMDs each year.

 

[orbops]

For those of you who make annual Roth conversions over multiple years, I was wondering if you establish a new Roth account each year to help keep track of when you made the conversion in order to comply with the 5-year rule? Please explain your method of recordkeeping for these conversions.

I keep an Excel spreadsheet of all contributions and conversions. I DO NOT establish a new Roth account. Since I'm not touching the Roth until I'm after 59 1/2, I don't have to worry about the second 5-year rule in which each conversion has it's own 5 year period. I've had a Roth since 2008.

 

[PERSonalTime]

fund your first Roth account by age 54.5, don't withdraw until age 59.5 or later, and never worry about record-keeping.

That's my situation. I guess I'm good. Thanks everyone for your responses!

 

[indiajust]

I kept a single piece of paper that tracked my basis in all the accounts over the decades, up until the final 6 rollovers to the Roth. Scanned it in and tossed the paper. Nothing left to roll.

 

[Lawrencewendall]

I created 2 Roth accounts. One for contributions and 1 for conversions. I turn 59.5 in 4 months at which time I'll just combine them.