Question

Which of the following statements is true concerning a failed conversion from an attempted reconversion? A. the amount will be treated as a conversion from the regular IRA and a conversion to the Roth B. the amount will be treated as a conversion from the regular IRA but a regular contribution to the Roth C. the amount will be treated as a distribution from the regular IRA and a conversion to the Roth D. the amount will be treated as a distribution from the regular IRA and a regular contribution to the Roth

Answer 1

D. The amount will be treated as a distribution from the regular IRA and a regular contribution to the Roth is the right answer. Also look below for more details:

Consequences of a Failed or Ineligible Conversion

A failed or ineligible conversion is treated as a regular distribution from the Traditional IRA and a contribution to the Roth IRA. This treatment of the assets has the following implications:

• The amount of the conversion will be treated as ordinary income and may be taxable.
• If the amount is in excess of the contribution limit for the year, the individual must remove the amount (from the Roth IRA) by the tax-filing date, plus extensions. Failure to remove the amount will result in a 6% excise penalty for each year the excess remains in the Roth IRA.
• If the individual was under age 59.5 when the failed conversion occurred, the amount will be subject to the 10% early-distribution penalty unless the individual meets an exception.