8640 / If a taxpayer converts a traditional IRA to a Roth IRA, does a taxable distribution take place that would subject the converted funds to the investment income tax?

In addition to actual retirement plan distributions (see Q 8639) that are excluded from net investment income, the final regulations also make it clear that deemed distributions from retirement plans are excluded. For example, a rollover of funds from a traditional IRA into a Roth IRA, where the funds are never actually received by the taxpayer, is nonetheless treated as a distribution for income tax purposes. Similar to actual retirement distributions, the IRA/Roth conversion deemed distribution is excluded from net investment income; and, thus, is not subject to the net investment income tax.¹

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1.  Treas. Reg. § 1.1411-8(b)(2).

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