Q&A: Can I Make a Prior-Year Roth Conversion This Year?

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It can sometimes be difficult to predict before December 31 how much you are allowed to contribute to your IRA for that tax year. Individual retirement account (IRA) contributions and their deductions are phased-out according to your modified adjusted gross income. Plus, you (or your spouse) are limited by your level of earned income or the IRA contribution limit, which ever is smaller. Because this information can be hard to gather before the year is done, the IRS extends the deadline for one tax year’s contributions one quarter into the following year and permits you to make prior year contributions until the filing deadline.

Roth conversion strategies face similar difficulties. The amount you rollover from traditional IRA to Roth IRA needs to be reported as a taxable Roth conversion. It’s taxable portion is only reduced by any nondeductible basis you may have. Often times you want to convert under an AGI line such as a Medicare IRMAA surcharge or perhaps to a target taxable income to stay within a specific tax bracket. For this reason, it would be nice if you could make a prior-year Roth conversion.

Alas, the year you move the funds from traditional IRA to Roth IRA is the year that those assets are taxed. Any conversion between January 1st and December 31st is taxable in that year. There is no prior-year provision. You can not convert now but count it as last year.

For this reason, those engaged in systematic Roth conversions need to take effort to project what their taxes might be before the year is done. We do this for our clients as a part of our Tax Review and Roth conversion services. You can read more about how we do this in “Our Customized Roth Conversion Recommendations.”

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Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.