ROTH CONVERSIONS OF ILLIQUID

ASSETS AND ROTH CONVERSIONS

TO SATISFY RMDS: TODAY’S
SLOTT REPORT MAILBAG
Thursday, March 11, 2021
By Ian Berger, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

I have self-directed traditional and Roth accounts at an SDIRA Custodian. Can I do a

Roth conversion of an illiquid asset from the traditional to the Roth account? The
investment I want to convert is a debt-only asset (no equity component) generating a
fixed 8% dividend. It has a consistent FMV from year to year. I know I will pay tax on the
conversion. I am 75 and retired.

Thank you,

Ray

Answer:

Hi Ray,

There is no rule preventing someone of your age from doing a Roth conversion or
preventing you from converting illiquid assets. Since Roth conversions are taxable, the
only practical issue would be valuing an illiquid asset for figuring out the taxes.
However, since you indicate that the FMV of your investment can be determined, that
should not be a problem for you. Keep in mind that the amount you convert cannot be
used to satisfy the RMD that is due in the same year. (See Q&A below.)

Question:

Next year in 2022, I will be age 72 in March. I plan to request my first RMD in December
of this same year 2022.

If I do a Roth conversion in early February of next year (2022), before I become age 72,
will this count toward my RMD for the year 2022?

Answer:

Generally, any IRA funds you take in 2022 – even before you turn 72 – will count
towards your 2022 RMD. However, that’s not the case for funds that you roll over. A
Roth conversion is considered a rollover, so it cannot satisfy your 2022 RMD. You
could, however, take additional amounts beyond your RMD and convert those amounts
after first taking your RMD.