Making Roth Conversion Today - how will it be treated?

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njboater74
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Making Roth Conversion Today - how will it be treated?

Post by njboater74 » Sat Dec 30, 2017 10:58 am

I'm considering doing a Traditional to Roth conversion today.

Since today is a Saturday in 2017, and the next business day is January 2 in 2018, will the conversion count against 2017 or 2018?

Is it based on the day I request the conversion? Or when Fidelity processes the conversion?
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Re: Making Roth Conversion Today - how will it be treated?

Post by DSInvestor » Sat Dec 30, 2017 11:02 am

2018 I believe. Orders submitted today 12/30/17 will execute on the next day the market is open 01/02/18.

Be aware IRA basis prorata issues if your conversion includes IRA basis. If you change jobs and transfer a 401k into a Rollover IRA during 2018, those assets will be counted on DEC 31, 2018 by the 2018 8606 form and trigger proration of your IRA basis.

If you made non-deductible contributions to Traditional IRA, make sure your 2017 tax return includes form 8606 to track that IRA basis and carry forward to 2018 tax year.
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Re: Making Roth Conversion Today - how will it be treated?

Post by livesoft » Sat Dec 30, 2017 11:03 am

It will be a 2018 conversion.

But I am told that Fidelity has great customer service and unlike Vanguard I am told that Fidelity answers the phone on Saturday.
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Re: Making Roth Conversion Today - how will it be treated?

Post by njboater74 » Sat Dec 30, 2017 11:06 am

Much appreciated!
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Re: Making Roth Conversion Today - how will it be treated?

Post by mikep » Sat Dec 30, 2017 11:10 am

If its 2018, be aware it is irreverisible, you are unable to recharacterize it.

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Re: Making Roth Conversion Today - how will it be treated?

Post by tibbitts » Sat Dec 30, 2017 11:17 am

Given the tax law change regarding recharacterization you might want to wait until the end of next year.

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Re: Making Roth Conversion Today - how will it be treated?

Post by Lynette » Sat Dec 30, 2017 11:34 am

Today (Saturday) I called the Charitable section twice about making QCDs. They said that the distribution date will be 1/2/2018. Both reps were most helpful and very knowledgeable. I've found it much easier to deal with Fidelity by phone as I get through to the specialists immediately. When I go to the branch as a walk-in I've got inexperienced reps who then have to call the specialists.

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Re: Making Roth Conversion Today - how will it be treated?

Post by njboater74 » Sat Dec 30, 2017 1:02 pm

I was looking to convert as much of a traditional to roth as possible without going into the next tax bracket (currently at 0%, for my retired parents).

I overestimated what the year end distributions would be from their funds. When the actual distributions were announced, there was about another $1000 they could have converted without being taxed.

I suppose the right strategy would have been to make the larger conversion and then recharacterize the amount that was subject to the higher tax bracket, if there was any.

Given that the recharacterization is going away, any thoughts on a strategy to better predict what the year end distributions will be, given that some will be declared on the last day of trading?
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Re: Making Roth Conversion Today - how will it be treated?

Post by celia » Sat Dec 30, 2017 1:14 pm

njboater74 wrote:
Sat Dec 30, 2017 1:02 pm
Given that the recharacterization is going away, any thoughts on a strategy to better predict what the year end distributions will be, given that some will be declared on the last day of trading?
Estimate as close as you can as late in the year as possible. Then don't worry about a $1,000 shortfall or over-conversion while aiming for the top of a tax bracket. If you go over, only the amount that is over will be taxed at the higher rate.

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Re: Making Roth Conversion Today - how will it be treated?

Post by njboater74 » Sat Dec 30, 2017 1:15 pm

celia wrote:
Sat Dec 30, 2017 1:14 pm
njboater74 wrote:
Sat Dec 30, 2017 1:02 pm
Given that the recharacterization is going away, any thoughts on a strategy to better predict what the year end distributions will be, given that some will be declared on the last day of trading?
Estimate as close as you can as late in the year as possible. Then don't worry about a $1,000 shortfall or over-conversion while aiming for the top of a tax bracket. If you go over, only the amount that is over will be taxed at the higher rate.
You're right, a $1000 shortfall or overage isn't a big deal. I was wondering if there was something I was missing. Thanks!
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Re: Making Roth Conversion Today - how will it be treated?

Post by samsoes » Sun Dec 31, 2017 7:03 am

njboater74 wrote:
Sat Dec 30, 2017 1:15 pm

You're right, a $1000 shortfall or overage isn't a big deal. I was wondering if there was something I was missing. Thanks!
$1000 or even $1 shortfall or overage would make a catastrophic difference when trying to avoid ACA cliffs.

The prior poster has a great point: how does one negotiate the ACA cliffs (If near the precipice) using Roth conversions without the recharacterization tool available and some funds don't declare distribution until the last trading day of the year?

Quite perplexing. :?:
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Re: Making Roth Conversion Today - how will it be treated?

Post by livesoft » Sun Dec 31, 2017 7:08 am

samsoes wrote:
Sun Dec 31, 2017 7:03 am
The prior poster has a great point: how does one negotiate the ACA cliffs (If near the precipice) using Roth conversions without the recharacterization tool available and some funds don't declare distribution until the last trading day of the year?

Quite perplexing. :?:
Don't own those funds. That was easy. :)
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Re: Making Roth Conversion Today - how will it be treated?

Post by samsoes » Sun Dec 31, 2017 7:15 am

livesoft wrote:
Sun Dec 31, 2017 7:08 am
samsoes wrote:
Sun Dec 31, 2017 7:03 am
The prior poster has a great point: how does one negotiate the ACA cliffs (If near the precipice) using Roth conversions without the recharacterization tool available and some funds don't declare distribution until the last trading day of the year?

Quite perplexing. :?:
Don't own those funds. That was easy. :)
Easy? How does one cease owning them without generating large capital gains which would push one way over the ACA cliff?
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Re: Making Roth Conversion Today - how will it be treated?

Post by livesoft » Sun Dec 31, 2017 7:16 am

What are the ticker symbols of the funds you are asking about?
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Re: Making Roth Conversion Today - how will it be treated?

Post by samsoes » Sun Dec 31, 2017 7:24 am

livesoft wrote:
Sun Dec 31, 2017 7:16 am
What are the ticker symbols of the funds you are asking about?
Don't know the OP's specific funds, but the ones I'm referring to are VTI, VNQ, VXUS.

I'm still a Megacorp drone, but may pull the ripcord very, very soon (early in 2018). I planned on Roth conversions and the post-12/31 recharacterization tool to adjust into the ACA sweet-spot and avoid cliffs.

No longer an option.
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Re: Making Roth Conversion Today - how will it be treated?

Post by earlyout » Sun Dec 31, 2017 8:02 am

njboater74 wrote:
Sat Dec 30, 2017 1:15 pm
celia wrote:
Sat Dec 30, 2017 1:14 pm
njboater74 wrote:
Sat Dec 30, 2017 1:02 pm
Given that the recharacterization is going away, any thoughts on a strategy to better predict what the year end distributions will be, given that some will be declared on the last day of trading?
Estimate as close as you can as late in the year as possible. Then don't worry about a $1,000 shortfall or over-conversion while aiming for the top of a tax bracket. If you go over, only the amount that is over will be taxed at the higher rate.
You're right, a $1000 shortfall or overage isn't a big deal. I was wondering if there was something I was missing. Thanks!
It is a big deal if the extra $1000 throws you into IRMAA!
Last edited by earlyout on Sun Dec 31, 2017 8:44 am, edited 1 time in total.

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Re: Making Roth Conversion Today - how will it be treated?

Post by samsoes » Sun Dec 31, 2017 8:13 am

earlyout wrote:
Sun Dec 31, 2017 8:02 am
It is a big deal if the extra $1000 throws you into IRMA!
What is IRMA? My googler only references Hurricane Irma.
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Re: Making Roth Conversion Today - how will it be treated?

Post by cherijoh » Sun Dec 31, 2017 8:27 am

samsoes wrote:
Sun Dec 31, 2017 7:03 am
njboater74 wrote:
Sat Dec 30, 2017 1:15 pm

You're right, a $1000 shortfall or overage isn't a big deal. I was wondering if there was something I was missing. Thanks!
$1000 or even $1 shortfall or overage would make a catastrophic difference when trying to avoid ACA cliffs.

The prior poster has a great point: how does one negotiate the ACA cliffs (If near the precipice) using Roth conversions without the recharacterization tool available and some funds don't declare distribution until the last trading day of the year?

Quite perplexing. :?:
Are you perchance invested in active funds that have wide swings in declared capital gains? My investments are in VG index funds that have declaration dates in the middle of December, so that would give me a few days to fire up the tax software if I were worried about any cliffs like you describe. (I'm still working so up until now it hasn't been a concern for me).

FYI - Vanguard posts the estimated dividends and capital gains for its mutual funds and ETF early in December - I think it was Dec 8th this year. I find them pretty accurate although what constitutes a "qualified dividend" may change. But I think most cutoffs are based on AGI or some form of MAGI so qualified vs. unqualified dividends wouldn't make a difference. I'm pretty sure other mutual fund companies provide their shareholders with year-end estimates as well if you check on their website.

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Re: Making Roth Conversion Today - how will it be treated?

Post by cherijoh » Sun Dec 31, 2017 8:30 am

samsoes wrote:
Sun Dec 31, 2017 8:13 am
earlyout wrote:
Sun Dec 31, 2017 8:02 am
It is a big deal if the extra $1000 throws you into IRMA!
What is IRMA? My googler only references Hurricane Irma.
Its actually IRMAA. :happy See this link.

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Re: Making Roth Conversion Today - how will it be treated?

Post by livesoft » Sun Dec 31, 2017 8:53 am

samsoes wrote:
Sun Dec 31, 2017 7:24 am
livesoft wrote:
Sun Dec 31, 2017 7:16 am
What are the ticker symbols of the funds you are asking about?
Don't know the OP's specific funds, but the ones I'm referring to are VTI, VNQ, VXUS.
These ETFs had all the information about their 12/27 payable date and AMOUNTS published at Vanguard.com on 12/20. I own VTI, so I knew back then EXACTLY how much would be paid out on 12/27.

I'll give a better example: DGS had a payout on 12/29. Here is a discussion on the subject I posted on 12/23:
viewtopic.php?f=2&t=235533&p=3681176
So I knew EXACTLY what I would be paid on 12/29.

What I didn't know was the foreign taxes that would be removed from my distribution.
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Re: Making Roth Conversion Today - how will it be treated?

Post by samsoes » Sun Dec 31, 2017 9:03 am

livesoft wrote:
Sun Dec 31, 2017 8:53 am
samsoes wrote:
Sun Dec 31, 2017 7:24 am
livesoft wrote:
Sun Dec 31, 2017 7:16 am
What are the ticker symbols of the funds you are asking about?
Don't know the OP's specific funds, but the ones I'm referring to are VTI, VNQ, VXUS.
These ETFs had all the information about their 12/29 payable date and AMOUNTS publisehd at Vanguard.com on 12/20. I own VTI, so I knew back then EXACTLY how much would be paid out on 12/29.
12/20? Wow, not a whole lot of room for error there.

Seriously, there's got to be a better way. I'm sure the intuitive folks on this forum or others will devise a less edge-of-your-seat strategy rather than to rely on the whims of a fund company to publish estimated payouts a week in advance of EOY.
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Re: Making Roth Conversion Today - how will it be treated?

Post by livesoft » Sun Dec 31, 2017 9:14 am

samsoes wrote:
Sun Dec 31, 2017 9:03 am
12/20? Wow, not a whole lot of room for error there.

Seriously, there's got to be a better way. I'm sure the intuitive folks on this forum or others will devise a less edge-of-your-seat strategy rather than to rely on the whims of a fund company to publish estimated payouts a week in advance of EOY.
9 days is not edge of seat. I also wrote EXPLICITLY about these distributions back on December 8 when the schedule for many of them became known:
viewtopic.php?p=3655019#p3655019 My post even has a December calendar shown.

What's that saying, if you fail to plan then you plan to fail.
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Re: Making Roth Conversion Today - how will it be treated?

Post by Iorek » Sun Dec 31, 2017 9:21 am

It is always an option not to try and exploit every dollar of advantage. You are certainly entitled to try and convert the last dollar of the 0% bracket while holding on to your Obamacare subsidies, but complaining that the fund companies don't make it easier for you to do it seems a bit much IMO.

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Re: Making Roth Conversion Today - how will it be treated?

Post by jebmke » Sun Dec 31, 2017 9:23 am

samsoes wrote:
Sun Dec 31, 2017 9:03 am
livesoft wrote:
Sun Dec 31, 2017 8:53 am
samsoes wrote:
Sun Dec 31, 2017 7:24 am
livesoft wrote:
Sun Dec 31, 2017 7:16 am
What are the ticker symbols of the funds you are asking about?
Don't know the OP's specific funds, but the ones I'm referring to are VTI, VNQ, VXUS.
These ETFs had all the information about their 12/29 payable date and AMOUNTS publisehd at Vanguard.com on 12/20. I own VTI, so I knew back then EXACTLY how much would be paid out on 12/29.
12/20? Wow, not a whole lot of room for error there.

Seriously, there's got to be a better way. I'm sure the intuitive folks on this forum or others will devise a less edge-of-your-seat strategy rather than to rely on the whims of a fund company to publish estimated payouts a week in advance of EOY.
Probably 90% or more of a pro-forma tax return can be prepared in advance and these final numbers dropped in and the net tax liability ex-conversion can be estimated pretty accurately in minutes (some people have January surprises on income but that is the exception rather than the rule and knowing the distributions on Dec 1 vs Dec 20 doesn't help you there).

December tax planning for the current year should typically be tweaking, not planning. The time to do your 2018 tax planning is now. I have a pro-forma return prepared for 2018 (pension starts next year) as well as 2023 when I start RMDs. I don't see how anyone could do a ROTH conversion without making some kind of estimate on the impact of out years from which the income is being pulled forward. Without this type of analysis you might as well just wet your index finger, stick it out the window and pick a number for conversion.
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Re: Making Roth Conversion Today - how will it be treated?

Post by samsoes » Sun Dec 31, 2017 9:36 am

livesoft wrote:
Sun Dec 31, 2017 9:14 am
samsoes wrote:
Sun Dec 31, 2017 9:03 am
12/20? Wow, not a whole lot of room for error there.

Seriously, there's got to be a better way. I'm sure the intuitive folks on this forum or others will devise a less edge-of-your-seat strategy rather than to rely on the whims of a fund company to publish estimated payouts a week in advance of EOY.
9 days is not edge of seat. I also wrote EXPLICITLY ...
Will all due respect, I disagree.

And please, don't shout by using all-caps in this and your prior posts. I can read lower-case letters. Thanks.
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Re: Making Roth Conversion Today - how will it be treated?

Post by livesoft » Sun Dec 31, 2017 9:48 am

samsoes wrote:
Sun Dec 31, 2017 9:03 am
I'm sure the intuitive folks on this forum or others will devise a less edge-of-your-seat strategy rather than to rely on the whims of a fund company to publish estimated payouts a week in advance of EOY.
Hmmmm. :)
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Re: Making Roth Conversion Today - how will it be treated?

Post by LadyGeek » Sun Dec 31, 2017 10:18 am

New member Warriorpoet85 has a similar question which is in this thread: Backdoor Roth Contribution and Conversion
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Re: Making Roth Conversion Today - how will it be treated?

Post by Warriorpoet85 » Sun Dec 31, 2017 10:43 am

LadyGeek wrote:
Sun Dec 31, 2017 10:18 am
New member Warriorpoet85 has a similar question which is in this thread: Backdoor Roth Contribution and Conversion
Thanks (and sorry for the duplication)!

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Re: Making Roth Conversion Today - how will it be treated?

Post by njboater74 » Sun Dec 31, 2017 12:17 pm

earlyout wrote:
Sun Dec 31, 2017 8:02 am
It is a big deal if the extra $1000 throws you into IRMAA!

Yep, there are all sorts of thresholds that you can inadvertently cross over if you don't plan out year end distributions properly. I played it safe and came in under.

Two of the funds - FIBAX and FSBAX post year-end distributions early in December, but still post their monthly distributions on the very last trading day of the year. So you have to estimate.

I may follow livesoft's advice and look for funds that don't do that.
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Re: Making Roth Conversion Today - how will it be treated?

Post by Epsilon Delta » Mon Jan 01, 2018 6:52 am

samsoes wrote:
Sun Dec 31, 2017 7:03 am
njboater74 wrote:
Sat Dec 30, 2017 1:15 pm

You're right, a $1000 shortfall or overage isn't a big deal. I was wondering if there was something I was missing. Thanks!
$1000 or even $1 shortfall or overage would make a catastrophic difference when trying to avoid ACA cliffs.

The prior poster has a great point: how does one negotiate the ACA cliffs (If near the precipice) using Roth conversions without the recharacterization tool available and some funds don't declare distribution until the last trading day of the year?

Quite perplexing. :?:
You can still recharacterize contributions, or just make them in the next year after you have the tax information. This should help if your still eligible for an IRA contribution, at this income level I think that means if you have earned compensation i.e. are not retired.

More risky:
You could do an indirect Rollover.
This depends on two things:
1) An indirect rollover conversion from a tIRA to a Roth is not subject to the once every 12 months rule.
2) An indirect rollover conversion is taxed in the year of the distribution.

So if you take a distribution from a tIRA on Dec 30 you have 60 days to decide how much to rollover back to a tIRA and how much to convert to the Roth. If you roll any amount back to a tIRA you'll have to wait two years before you do this again.

There are several ways this could go horribly wrong, I did say it was risky.

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Re: Making Roth Conversion Today - how will it be treated?

Post by Alan S. » Mon Jan 01, 2018 12:37 pm

The year end 60 day rollover conversion has hybrid tax implications, especially this year.

Yes, it is reported in the year of distribution on Form 8606. Any withholding would be for the distribution year, but could be replaced with the conversion contribution.

However, it is reported as a conversion by the receiving Roth custodian in the actual year received and Form 5498 is issued accordingly. That means that the 5 year holding period for that conversion starts in the YEAR AFTER the distribution year, notwithstanding the 8606.

And for this year, that means the conversion contribution will be in 2018, and therefore cannot be recharacterized.

If you rolled any portion back to the TIRA and had the rollover available under the one rollover limitation, then you would be unable to do a later 60 day rollover (TIRA to TIRA or Roth IRA to Roth IRA) for 12 months after the date of the late 2017 distribution.

This strategy is viable this year if you really understand all the implications. It could be used to execute an exact conversion amount even though the conversion could not be recharacterized. Conversely, if you guess at the conversion amount in December and execute it by the usual same trustee transfer method, then you are in limbo since you "may" be able to recharacterize all or part, or if the custodian, IRS, or Congress so rules then you "may not". Someone reported that Vanguard has already stated they would recharacterize a 2017 conversion in 2018, so they must be sure this is allowed, but in the event they are wrong, I doubt that the IRS would require them to rescind the recharacterization.

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