HELP :) In Plan Roth Conversion (Last Minute!)

[austin3515]

When is an in-plan roth conversion taxable? All the IRS Notice says (2010-84) is "it is generally taxable when the distribution occurs" which I think is ridiculous because there is no distribution.

Obviously I have an 11th hour request from a client. Any value in having them make the election effective as of today? What if the plan was in a pooled account (this one is daily val anyway, but the point is that an entry on a computer should not have any affect on when it is taxable).

[Belgarath]

Interesting. I suppose one could make an argument for either interpretation (as of the date election is signed, or as of the date it is "processed.")

As opposed to a normal distribution where a check is actually issued, I'd lean toward the date the election is signed, rather than the "processing" date.

[austin3515]

How is it possible that they didn't spell this one out. Unbelievable...

[GMK]

I would consider that the "distribution" occurs when the funds are no longer in the pre-tax account, like when the check is written in the write-a-check case. Typically, the check is issued after the date (or at least rarely on the same date) that the election is signed and submitted.

[QDROphile]

Why is it not taxable with respect to the date of credit of the converted amount to the Roth account? The timing of the credit date is determined by the plan's administrative practices the same as the distribution date of real distributions is determined by the administrative practices of the plan.

[Bird]

At a practical level, the answer is "it depends on who is issuing the 1099-R." If I had a pooled plan and forms signed today, I would say the transaction happened today. If it's daily val'd and the recordkeeper does 1099s, I'm not arguing with them about it - whatever their system says wins; tough nuts for people who try to do things on 12/31.

[austin3515]

In this case, we added Roth conversions just befor Christmas but the recordkeeper has not been able to set them up still. Obviously can't process a distribution until it is on the plan.

But the point is, nothing really happens. No money is leaving the plan. In essence it is not different than a pooled account just because there happens to be a bigger fancier computer on the other end. IF this was a true cash distribution, different story. Something is actually happening. But with an in-plan conversion, nothing legally happens beyond the election itself.

[jpod]

I would say that if the client wants it to be taxable this year he has a very defensible position that it is. Whether the 1099-R will say otherwise is a different matter. Sure the client will have a headache if he gets a 2015 1099-R rather than a 2014, but the form 1099-R filer can't control when it's taxable.

[austin3515]

I LOVE Great West. They are making it happen today. They really are something else!

[Briandfox]

The only question I would have had was when will the participant statement's reflect the money as Roth?

A very conservative take on this would be that that is the date of conversion (instead of distribution).

However as others have said the most important thing will be a 1099-R issued for the 2014 year showing the taxable amount. As long as a tax is recognized in 2014 and you have signed and dated election paperwork for the same year, I am sure you are fine.

[austin3515]

According to GW, everything will show as of 12/31. I am inclined to agree with you.

[Briandfox]

Election Form dated in 2014, honoring it for 2014 and a 1099-R issued for 2014, I wish my issues resolved as perfectly. Good Job.