Updated Tuesday, July 22, 2014 as of 3:44 PM ET
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Ask Ed Slott: Valuing IRA Assets for Roth Conversions
Monday, December 16, 2013
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I opened a Roth IRA in 2001.  I took all the money out in 2013 when I turned age 59 ˝. Although the account was still open a few months longer, there is no money in it.

Now, 6 months later, I want to do a Roth conversion with an investment of $30,000 that is currently in my self-directed IRA at another institution.  The upside potential for this $30,000 investment in the next 5 years is huge so it seems to make sense that it would be better off in a Roth.

Can I open a new Roth IRA at this different institution and make my Roth conversion without having to wait 5 years?

Are there any guidelines for valuing this investment (a private offering memorandum) at the time of the conversion or is it valued as just the monies that you have invested? 

You can open a Roth IRA at any institution at any time. The conversion is taxed on the fair market value of the assets when they’re distributed from the IRA. Because you are over age 59 ˝, there is no 10% penalty if you withdraw the conversion funds within 5 years. Also, because you opened your first Roth IRA in 2001 (i.e., more than 5 years ago) and you’re over age 59 ˝, all distributions are now considered qualified and thus tax-free. IRS has been very clear that IRA assets must be valued at fair market value both for Roth conversions and for RMD (required minimum distribution) purposes. You should be sure that the value placed on your investment is one that would pass IRS scrutiny.

The taxpayer was a partner in a law firm. A few years back he left the firm, selling back his partnership interest, and was employed by a new law firm as a W-2 employee. 

In 2013, he rolled over a portion of the 401(k) plan from his original firm to a new IRA account. The 401(k) plan had two "components" - a Profit Sharing component and a Partners’ component. The rollover came from the Profit Sharing component.  

He now, still in 2013, wants to roll over more money from both components of the 401(k) plan to the same new IRA account to which the first 401(k) withdrawal was transferred.   He will then purchase a real estate investment in this new IRA account.

I am aware of the one-year restrictions on IRA-to-IRA accounts – but the above is from a 401(k) plan to an IRA plan. Is there any reason that the Taxpayer cannot do what he now wants to do – rollover more money now from the two components of the 401(k) plan to the IRA account created from the first rollover?

The one-rollover-per-year rule does not apply to distributions from 401(k)s. He can rollover more money now to the same IRA or to a new IRA.

My mom recently passed away and she had an IRA on which myself, my brother and my sister are named as equal beneficiaries.  For reasons I won't get in to, my sister is considering disclaiming her portion.  If she does so, would her portion then be split equally between my brother and me? 

If she files a qualified disclaimer of her portion of that IRA, the result is as if she died before you and your brother. Typically, her disclaimed portion would be shared equally between the two remaining beneficiaries. You should seek advice from an attorney as a disclaimer is a legal document. You should also check with the IRA custodian to determine who would inherit the disclaimed share before any disclaimer is actually done.

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