Reinvest RMD from Inherited IRA into Roth IRA

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cbrevard
Posts: 2
Joined: Thu Dec 28, 2017 11:50 pm

Reinvest RMD from Inherited IRA into Roth IRA

Post by cbrevard » Fri Dec 29, 2017 2:00 am

I've got $160k in an Inherited IRA which I received as a non-spouse beneficiary. I've just taken the first RMD of $3600 using Vanguard's RMD service. At the moment, it's sitting in a non-retirement brokerage account, also Vanguard.

I want to confirm a few things that are not quite clear to me:
  1. Can I reinvest the RMD into an existing Roth IRA?
  2. In order to do #1, must I first transfer the money to a bank account?
  3. Can I convert the balance of the Inherited IRA into a Roth IRA?
I've found contradictory information regarding #1. The second question stems from something I read on IRAHelp.org, and the third I'm pretty sure I cannot do because of the fact that I'm a non-spouse beneficiary, but, like I said, I just want to be sure that's the case.

Regards,

cb

kaneohe
Posts: 4821
Joined: Mon Sep 22, 2008 12:38 pm

Re: Reinvest RMD from Inherited IRA into Roth IRA

Post by kaneohe » Fri Dec 29, 2017 9:57 am

cbrevard wrote:
Fri Dec 29, 2017 2:00 am
I've got $160k in an Inherited IRA which I received as a non-spouse beneficiary. I've just taken the first RMD of $3600 using Vanguard's RMD service. At the moment, it's sitting in a non-retirement brokerage account, also Vanguard.

I want to confirm a few things that are not quite clear to me:
  1. Can I reinvest the RMD into an existing Roth IRA?
  2. In order to do #1, must I first transfer the money to a bank account?
  3. Can I convert the balance of the Inherited IRA into a Roth IRA?
I've found contradictory information regarding #1. The second question stems from something I read on IRAHelp.org, and the third I'm pretty sure I cannot do because of the fact that I'm a non-spouse beneficiary, but, like I said, I just want to be sure that's the case.

Regards,

cb
1) The contradictory info about #1 is probably just loose language. As your link discusses, the RMD from inherited IRA is a taxable distribution (assuming TIRA). You cannot reinvest the RMD into a Roth and expect to not pay those taxes if that is what you are thinking by "reinvest".
You cannot, e.g. have a direct transfer from inherited IRA to your Roth. Nor can you have a check made out to your Roth account from your
inherited IRA. The check will be made out to you . Whether you can deposit that check in Roth w/o complications, I'm not sure. Perhaps ask
the Roth custodian about that.........whether they will accept as an original contribution to the Roth subject to the annual contribution limits
or whether that's a problem coming from the TIRA.
2)Not sure, but this would be cleanest way to "launder" the funds and show that it's just cash.
3)no , you have the right answer since you're not spouse.

livesoft
Posts: 61944
Joined: Thu Mar 01, 2007 8:00 pm

Re: Reinvest RMD from Inherited IRA into Roth IRA

Post by livesoft » Fri Dec 29, 2017 10:20 am

One has to be eligible to contribute to a Roth IRA in order to contribute to a Roth IRA. That means one needs earned income or compensation. An RMD from an inherited IRA does not count as earned income nor compensation, but since money is money, if one has the earned income or compensation to make one eligible for a Roth IRA contribution, then one can use the RMD money to make the contribution. The RMD does not have to go into a bank account first.
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F150HD
Posts: 1542
Joined: Fri Sep 18, 2015 7:49 pm

Re: Reinvest RMD from Inherited IRA into Roth IRA

Post by F150HD » Fri Dec 29, 2017 10:55 am

cbrevard wrote:
Fri Dec 29, 2017 2:00 am
I've got $160k in an Inherited IRA which I received as a non-spouse beneficiary. I've just taken the first RMD of $3600 using Vanguard's RMD service. At the moment, it's sitting in a non-retirement brokerage account, also Vanguard.

I want to confirm a few things that are not quite clear to me:
  1. Can I reinvest the RMD into an existing Roth IRA?
  2. In order to do #1, must I first transfer the money to a bank account?
  3. Can I convert the balance of the Inherited IRA into a Roth IRA?
I've found contradictory information regarding #1. The second question stems from something I read on IRAHelp.org, and the third I'm pretty sure I cannot do because of the fact that I'm a non-spouse beneficiary, but, like I said, I just want to be sure that's the case.

Regards,

cb
That article is somewhat confusing (small snip of it below)

Image


Why don't you go post on their Twitter feed and ask them about it? Unclear why the writer references a 'bank account'.

Are you eligible for a Roth? have you ever contributed to one before?

My guess is, most folks here would recommend you keep the funds in the inherited IRA as long as you can to maximize tax free growth. (of course you still have to take RMDs but....)

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Reinvest RMD from Inherited IRA into Roth IRA

Post by retiredjg » Fri Dec 29, 2017 11:01 am

If you are otherwise eligible to contribute to Roth IRA, it does not matter where the money comes from. But you will have to pay the taxes on the RMD - that does not change.

DarthSage
Posts: 206
Joined: Tue Sep 19, 2017 9:39 am

Re: Reinvest RMD from Inherited IRA into Roth IRA

Post by DarthSage » Fri Dec 29, 2017 11:31 am

We're planning on doing this, only with an inherited Roth. DH will be inheriting the Roth--there's not a lot in it, roughly $25k. But, we have to deplete it, since his mom died. We have 5 years to do this, starting in 2018.

Our plan is, take out 20% next year. Put it in an account. Write a check/transfer from that account, into his Roth. You can't go directly from the inherited Roth to his Roth, but money is fungible. We are Roth eligible.

I imagine it would be the same way with RMDs, but as others have said, you WILL have to pay taxes on the RMD. But then, the money is yours to do with as you please. You could invest it in a Roth, invest it in an index fund, or buy 500 pounds of Swedish fish. I don't recommend the Swedish fish route.

cbrevard
Posts: 2
Joined: Thu Dec 28, 2017 11:50 pm

Re: Reinvest RMD from Inherited IRA into Roth IRA

Post by cbrevard » Sat Dec 30, 2017 9:01 pm

Thanks, all, for responding.

I am Roth-eligible and do have a Roth IRA with Vanguard. Vanguard will not allow me to transfer the RMD directly to it, however (at least, not via the web interface of their site). I suspect that this is for reasons already stated (i.e. I've got to pay taxes on the RMD).

I'm going to take the RMD as a distribution from the non-retirement account it's sitting in, declare it as income on my 2017 taxes, and then put it into the Roth IRA. I'm pretty sure that that's on-the-level as far as the IRS is concerned.

Cheers,
cb

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