@Jimbert wrote:
"... request a return of the excess amount ..."
Does that mean the "return" will go back into the IRA that it originally came from?
The conversion in my case was simply a transfer of stocks from one IRA to one Roth. Do the same stocks have to be returned or can it just be an equivalent dollar amount?
It would really help to post a new conversation since we don't know if your facts are the same as this 3 year old conversation.
Let's recap.
Suppose you convert your entire traditional IRA to a Roth IRA before taking your RMD from the trad IRA (the situation of the original question). Because you must take the RMD first, this is a failed conversion. Let's make some imaginary numbers. The IRA value was $50,000 and your RMD amount was $4000. That means, the situation will be treated as if you did the following:
1. You made a regular $4000 withdrawal.
2. You converted $46,000.
3. You contributed $4000 into the Roth IRA.
That failed conversion (because the RMD must come out first) is treated as if it was a regular contribution. Unless you have income from employment, you are not allowed to make Roth IRA contributions, so it is an excess contribution.
Therefore, it must be removed as an "excess contribution". That means cash coming to you, not going back to the IRA. The whole point of an RMD is that you must withdraw your account over time and pay taxes on it, you can't keep it in the IRA and never spend it. That means that you should have withdrawn the $4000 and paid tax on it before converting the other $46,000 (using my fake example, substitute your own numbers of course). So the correction process is to remove the $4000 of cash and pay tax on it.
So in fact, you pay tax in two ways on different parts of the transaction.
1. When reporting the conversion, enter the 1099-R, and say that $46,000 was converted and $4000 was kept out. You will pay tax on the entire $50,000 withdrawal according to the usual rules.
2. Enter the 1099-R for the withdrawal of excess from the Roth IRA. The conversion portion is not taxable, but the net attributed earnings are taxable.
