IRA Conversion RMD Question

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wilpat
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IRA Conversion RMD Question

Post by wilpat »

If I convert some amount from an IRA to a Roth does that amount count as part of my RMD requirement?
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jimb_fromATL
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Re: IRA Conversion RMD Question

Post by jimb_fromATL »

wilpat wrote:If I convert some amount from an IRA to a Roth does that amount count as part of my RMD requirement?
No. The intent of RMDs is to remove some of your money out of tax-advantaged retirement accounts and put it into circulation every year, not just to pay the taxes and move some of it to another kind of tax-advantaged account.

HERE is one of many sites that discuss it.

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Re: IRA Conversion RMD Question

Post by Geologist »

jimb_fromATL wrote:
HERE is one of many sites that discuss it.

jimb
And as this link points out, legally you must make your RMD before making a conversion to a Roth.
Alan S.
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Re: IRA Conversion RMD Question

Post by Alan S. »

jimb_fromATL wrote:
wilpat wrote:If I convert some amount from an IRA to a Roth does that amount count as part of my RMD requirement?
No. The intent of RMDs is to remove some of your money out of tax-advantaged retirement accounts and put it into circulation every year, not just to pay the taxes and move some of it to another kind of tax-advantaged account.

HERE is one of many sites that discuss it.

jimb
Actually, the answer is Yes. Any distribution that is not a corrective distribution counts toward the RMD.

The problem is that the RMD was rolled over (converted) and that is an excess contribution to the Roth IRA that must be removed to avoid 6% annual excess contribution penalties.

Some people do this in error, and correcting the excess contribution can be done in either of two ways:
1) Recharacterize the conversion if still in the same year and re distribute the RMD
2) Remove the excess contribution which is treated as an excess regular contribution to the Roth

Neither of these methods are costly if done in the same distribution year, but they cause some reporting challenges.
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wilpat
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Re: IRA Conversion RMD Question

Post by wilpat »

Let me explain it a little more clearly (hopefully).
My RMD for 2015 is about $1,000.00. (Based on the December 31st 2014 amount in the IRA).
I converted $5,000.00 to a Roth last week.
I had intended to do the RMD late in the year for the whole $1,000.00.
It seems that I must now recharacterize the $5000.00 and then take the $1,000.00 RMD.
I will then be able to convert the $5000.00 from the IRA to the Roth.

Does this seem to be correct?
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Re: IRA Conversion RMD Question

Post by rkhusky »

Would pulling $1000 out of the Roth (remove excess contribution) and putting it into taxable work?
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Re: IRA Conversion RMD Question

Post by Alan S. »

wilpat wrote:Let me explain it a little more clearly (hopefully).
My RMD for 2015 is about $1,000.00. (Based on the December 31st 2014 amount in the IRA).
I converted $5,000.00 to a Roth last week.
I had intended to do the RMD late in the year for the whole $1,000.00.
It seems that I must now recharacterize the $5000.00 and then take the $1,000.00 RMD.
I will then be able to convert the $5000.00 from the IRA to the Roth.

Does this seem to be correct?
Yes, that would correct the excess contribution, and leave 5k in your Roth.

The other option is to do a corrective distribution of the excess 1,000 (20% of your conversion). But that would leave only 4k in your Roth, so if you wanted 5k in the Roth as in the first example, you would have to convert another 1k.

Either way, your gross TIRA distribution total is 6k like it would have been under your original plan. You end up with 1k (RMD) and the Roth ends up with 5k.
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Re: IRA Conversion RMD Question

Post by Alan S. »

rkhusky wrote:Would pulling $1000 out of the Roth (remove excess contribution) and putting it into taxable work?
Yes, that would also correct the excess contribution (allocated earnings along with it), but another 1k would have to be converted later to end up with 5k in the Roth without any excess amount.
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DonCamillo
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Re: IRA Conversion RMD Question

Post by DonCamillo »

It is really an obnoxious and pointless regulation, but it is the law.

The first withdrawal from an IRA is automatically classified as an RMD. That must be satisfied before you can do a Roth Conversion. Otherwise, I would probably have waited to December for my RMD. I am trying to move as much as possible from my IRA to my Roth before I retire. I can shelter my working income in 403b and 457b plans, but I cannot shelter my RMDs. This year I did my RMD on January 2nd, got the confirmation on the 3rd, and made my Roth conversion on the 5th. I am 70 and still working, and will be subject to RMD from my current employer retirement plans when I retire.
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Re: IRA Conversion RMD Question

Post by Alan S. »

DonCamillo wrote:It is really an obnoxious and pointless regulation, but it is the law.

The first withdrawal from an IRA is automatically classified as an RMD. That must be satisfied before you can do a Roth Conversion. Otherwise, I would probably have waited to December for my RMD. I am trying to move as much as possible from my IRA to my Roth before I retire. I can shelter my working income in 403b and 457b plans, but I cannot shelter my RMDs. This year I did my RMD on January 2nd, got the confirmation on the 3rd, and made my Roth conversion on the 5th. I am 70 and still working, and will be subject to RMD from my current employer retirement plans when I retire.
You could shelter your IRAs from RMDs by rolling them into your current employer plan if your plan will accept IRA rollovers. That would delay all RMDs until you retire, when your income will be lower (unless your IRAs are very large in relation to your job earnings). You would still have to take the IRA RMD for the year you did the rollover to the employer plan, but that would end the IRA RMDs until the RMDs start on your current employer plan.

And if you want to do incremental conversions from your IRA, do not roll all of it into the employer plan. Keep enough in the TIRA to fund small incremental conversions for the number of years you expect to work even though you will still need to take RMDs on the smaller TIRA balance before converting.
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