Dividends Paid After a Roth Conversion

Dec 03, 2008 2 Replies
A

On 10/28 I converted my entire IRA into a Roth IRA, securities and cash. On 11/14 one of the stocks transferred into Roth paid $1000 dividend. The pay date was 11/14, the date of record for the dividend was 10/24 and the conversion date 10/28.



The custodian deposited the $1000 dividend in the traditional IRA that I thought I was done with. Now the question is where does the $1000 belongs to: the traditional IRA or the Roth IRA? I know i can also convert the dividend to Roth but that will be taxable.



Thanks, Alex


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P

In the traditional.

Yes, you can, and yes, it will. Look at it this way. On the date of the conversion the value of the stock in the traditional was, in theory, depressed by the amount of the pending dividend. If you had converted before the record date the stock would have reflected the higher pre-dividend value, so you would have had more income from the initial conversion.

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D

You asked the custodian to convert, but did you also ask him to close the traditional IRA account? If you didn't do that, such explains why it ended up in the traditional account.

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