Source of Dec 31 Roth conversion deadline?

[Guest tborek]

I've seen the 12/31 deadline for Roth conversions quoted extensively, but am stuck on a basic question: where in the code/regs does it come from? The only mention I've found of a Dec 31 deadline concerned the four-year plan for recognizing income from 1998 conversions in 408Aa3Aiii. Beyond that, the code/regs & Pub 590 appear to leave the question somewhat open to interpretation.

Pub 590 doesn't actually address it explicitly. It references the tax return filing date as the deadline for contributions but is unclear whether it's referring to standard contribs only or also qualified rollover contribs.

And Code sections 408A©(7) and 219(f)(3) appear to allow you to deem a trad-to-roth transfer made before your tax return filing deadline as having been made 12/31 of the prior year. Which would seem to allow conversions after 12/31. That of course hinges on "contributions" in 408ac7 being interpreted to include "qualified rollover contributions", but I can't see anything to the contrary in the code.

The Roth regs (eg 1.408A-4) say we need to include the conversion amount as income "for the taxable year in which the amount is distributed or transferred from the traditional IRA". But if the above code sections apply, wouldn't a pre-filing transfer be deemed to have been done on 12/31, hence qualify?

But before I hit the seminar circuit with a new loophole, figured I'd bounce it off some pros... ;-)

[Appleby]

Refer to IRC 408A(d)(3)(D), which states that a conversion is treated as a distribution from the traditional and a rollover contribution to the Roth IRA.

Distributions are reportable and taxable in the year processed from the IRA.

Refer also Treas Reg § 1.408A-4, Q&A 1(B), 1©.

Incidentally, what is a "a pre-filing transfer ". Maybe this will help me to provide a more definitive response

[Guest tborek]

I think I seem my problem...I was focusing on the "contribution" side of the law, which says that a contribution made to a Roth after the end of the year but before the due date for filing a tax return for that year can be deemed to have been made 12/31 of the prior year. If "contribution" includes qualified rollover contributions, then the deemed date should apply to rollovers from traditional IRAs to Roths (ie Roth conversions).

But that's focusing on the wrong provision. The tax comes out of the "distribution" side of the law. And that law says, if you distribute money out of a traditional IRA (including rolling it into a Roth in a conversion) then tax is owed for the year the distribution actually occurs. The deemed date provision doesn't apply to the distribution side of things.

Right? OK I can sleep easy now...the tax code is back to being rational ;-)