I have clients who have two or more Traditional IRAs set up with different investment companies. They are, for estate planning purposes, considering converting one or part of one Traditional IRA to a Roth IRA after 1/1/2010, which marks the elimination of AGI limits on IRA conversions. I did not think this would be a problem until I stumbled across professional commentary regarding the inability to make partial conversions after 1/1/2010.
Some advisors are under the impression that all IRAs maintained by a taxpayer will be treated as one IRA by the IRS for purposes of a 2010 conversion. The problem they're warning against is that, upon conversion, the IRS will tax amounts held by all of the taxpayer's Traditional IRAs rather than just those amounts which are converted, essentially eliminating the taxpayer's ability to convert only part of his Traditional IRA or convert only one of two or more Traditional IRAs.
Has anyone else heard about this? Can anyone point me to actual IRS guidance regarding this (as the commentary did not cite to any guidance)? I wouldn't be as concerned if I only encountered one or two articles, but there were many of them out there.
Any help would be greatly appreciated.
Full Version: 2010 Conversion of Traditional IRA to a Roth IRA
QUOTE (Dressageho @ Aug 7 2009, 09:06 AM) 
I have clients who have two or more Traditional IRAs set up with different investment companies. They are, for estate planning purposes, considering converting one or part of one Traditional IRA to a Roth IRA after 1/1/2010, which marks the elimination of AGI limits on IRA conversions. I did not think this would be a problem until I stumbled across professional commentary regarding the inability to make partial conversions after 1/1/2010.
Some advisors are under the impression that all IRAs maintained by a taxpayer will be treated as one IRA by the IRS for purposes of a 2010 conversion. The problem they're warning against is that, upon conversion, the IRS will tax amounts held by all of the taxpayer's Traditional IRAs rather than just those amounts which are converted, essentially eliminating the taxpayer's ability to convert only part of his Traditional IRA or convert only one of two or more Traditional IRAs.
Has anyone else heard about this? Can anyone point me to actual IRS guidance regarding this (as the commentary did not cite to any guidance)? I wouldn't be as concerned if I only encountered one or two articles, but there were many of them out there.
Any help would be greatly appreciated.
Some advisors are under the impression that all IRAs maintained by a taxpayer will be treated as one IRA by the IRS for purposes of a 2010 conversion. The problem they're warning against is that, upon conversion, the IRS will tax amounts held by all of the taxpayer's Traditional IRAs rather than just those amounts which are converted, essentially eliminating the taxpayer's ability to convert only part of his Traditional IRA or convert only one of two or more Traditional IRAs.
Has anyone else heard about this? Can anyone point me to actual IRS guidance regarding this (as the commentary did not cite to any guidance)? I wouldn't be as concerned if I only encountered one or two articles, but there were many of them out there.
Any help would be greatly appreciated.
Do you have links to those commentaries? It would be helpful to understand their logic and then some of us could comment. Generally speaking however, if the only the converted amounts are reported on Form 1099-R, where would the IRS get the total value of all IRAs as those values are changing all of the time. It would be burdensome at best and there really is no basis in the code or regulations .
Edited for fat fingers twice
QUOTE (Dressageho @ Aug 7 2009, 11:06 AM)
I have clients who have two or more Traditional IRAs set up with different investment companies. They are, for estate planning purposes, considering converting one or part of one Traditional IRA to a Roth IRA after 1/1/2010, which marks the elimination of AGI limits on IRA conversions. I did not think this would be a problem until I stumbled across professional commentary regarding the inability to make partial conversions after 1/1/2010.
Some advisors are under the impression that all IRAs maintained by a taxpayer will be treated as one IRA by the IRS for purposes of a 2010 conversion. The problem they're warning against is that, upon conversion, the IRS will tax amounts held by all of the taxpayer's Traditional IRAs rather than just those amounts which are converted, essentially eliminating the taxpayer's ability to convert only part of his Traditional IRA or convert only one of two or more Traditional IRAs.
Has anyone else heard about this? Can anyone point me to actual IRS guidance regarding this (as the commentary did not cite to any guidance)? I wouldn't be as concerned if I only encountered one or two articles, but there were many of them out there.
Any help would be greatly appreciated.
Some advisors are under the impression that all IRAs maintained by a taxpayer will be treated as one IRA by the IRS for purposes of a 2010 conversion. The problem they're warning against is that, upon conversion, the IRS will tax amounts held by all of the taxpayer's Traditional IRAs rather than just those amounts which are converted, essentially eliminating the taxpayer's ability to convert only part of his Traditional IRA or convert only one of two or more Traditional IRAs.
Has anyone else heard about this? Can anyone point me to actual IRS guidance regarding this (as the commentary did not cite to any guidance)? I wouldn't be as concerned if I only encountered one or two articles, but there were many of them out there.
Any help would be greatly appreciated.
What you may be thinking of is the requirement that all IRAs must be aggregated to determine ratio of the taxable amount transferred to a Roth where the IRA owner has made after tax contributions. For example if an IRA owner has made $10,000 in after tax contributions to IRA#1 with a value of $12,000 and the aggregate value of this IRA and all of his other IRAs is $200,000, a conversion of $100,000 from IRA #2 which holds no after tax funds will be deemed to consist of $5,000 in after tax funds and a $95,000 taxable distribution because the ratio of the after tax amount to the total amount converted is 10,000/200,000 or 1/20th of $100,000.
This is a "lo-fi" version of our main content. To view the full version with more information, formatting and images, please click here.