Roth conversions in the year before my RBD

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vtMaps
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Roth conversions in the year before my RBD

Post by vtMaps »

I turn 73 this year and must take my 2024 RMD (from an IRA) before my Required Beginning Date (RBD) which is April 1, 2025.

Question: Can I do a Roth conversion in 2024 if I do not take my first RMD until 2025?

--vtMaps
"Truly, whoever can make you believe absurdities can make you commit atrocities" --Voltaire, as translated by Norman Lewis Torrey
secondcor521
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Re: Roth conversions in the year before my RBD

Post by secondcor521 »

You can do Roth conversions any year you want, whether subject to RMDs or not.

As long as your withdrawals (excluding Roth conversions, including QCDs) exceed your RMD every year, I personally think you have met the tax requirements. Several here suggest a requirement that the Roth conversions happen after the RMD is satisfied; I don't personally think that's correct, but I really don't want to debate it either.

Safest and usually best course of action, then, would be to take your 2024 RMD this year, then do any Roth conversion you want. That meets your RMD/RBD requirements, prevents two RMDs next year, and supports your desire to do a Roth conversion.

You could do as you suggest also, but most people seem to think that taking two RMDs in a single year creates a "pulse" of higher income which can have undesirable taxation. I guess that would depend on the size of the RMDs and the rest of your tax situation, but it's a consideration.

Remember, of course, that your RMD (minus any QCD) plus your Roth conversions will generally be taxed at ordinary income rates.
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vtMaps
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Re: Roth conversions in the year before my RBD

Post by vtMaps »

secondcor521 wrote: Sat Feb 10, 2024 11:39 am You could do as you suggest also, but most people seem to think that taking two RMDs in a single year creates a "pulse" of higher income which can have undesirable taxation.
If I do a RMD and a Roth conversion in 2024, and a RMD in 2025, that will create a "pulse" of 2024 taxable income.
If I do a Roth conversion in 2024 and two RMDs in 2025, that will create a "pulse" of 2025 taxable income.
secondcor521 wrote: Sat Feb 10, 2024 11:39 am Safest and usually best course of action, then, would be to take your 2024 RMD this year, then do any Roth conversion you want. That meets your RMD/RBD requirements, prevents two RMDs next year, and supports your desire to do a Roth conversion.
I agree, that is safest. If I do the Roth conversion in 2024 before the RMD and then find out it is not permissible, my RBD could be a really bad day :wink:

--vtMaps
"Truly, whoever can make you believe absurdities can make you commit atrocities" --Voltaire, as translated by Norman Lewis Torrey
secondcor521
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Re: Roth conversions in the year before my RBD

Post by secondcor521 »

vtMaps wrote: Sat Feb 10, 2024 12:23 pm
secondcor521 wrote: Sat Feb 10, 2024 11:39 am You could do as you suggest also, but most people seem to think that taking two RMDs in a single year creates a "pulse" of higher income which can have undesirable taxation.
If I do a RMD and a Roth conversion in 2024, and a RMD in 2025, that will create a "pulse" of 2024 taxable income.
If I do a Roth conversion in 2024 and two RMDs in 2025, that will create a "pulse" of 2025 taxable income.
I tend to take the approach of accepting all of my "required" income, then figuring out my desired AGI, then Roth converting to fill the difference if any. If you varied the size of your Roth conversions, that could reduce your "pulse" if that's undesirable. (Sometimes a pulse is what you want - I may want a pulse in the next two years due to the TCJA sunset).
Alan S.
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Re: Roth conversions in the year before my RBD

Post by Alan S. »

vtMaps wrote: Sat Feb 10, 2024 11:21 am I turn 73 this year and must take my 2024 RMD (from an IRA) before my Required Beginning Date (RBD) which is April 1, 2025.

Question: Can I do a Roth conversion in 2024 if I do not take my first RMD until 2025?

--vtMaps
If you do a Roth conversion or any other IRA distribution in 2024 before completing your 2024 RMD, the converted or distributed amount will be applied to your 2024 RMD, but because you rolled that amount over to a Roth IRA or TIRA, you will have an excess Roth IRA or TIRA contribution.

Basically, the 3 month extension in the RBD year has no effect on these rules other than to provide an extra 3 months to complete your first year RMD.

Normally, it's advisable to complete your conversions before your first RMD distribution year. After that your taxable income will have to include both the RMD and the post RMD conversion.
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vtMaps
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Re: Roth conversions in the year before my RBD

Post by vtMaps »

Thanks all,
my course is set. 2024 RMD before 2024 Roth conversion. --vtMaps
"Truly, whoever can make you believe absurdities can make you commit atrocities" --Voltaire, as translated by Norman Lewis Torrey
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celia
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Re: Roth conversions in the year before my RBD

Post by celia »

vtMaps wrote: Sat Feb 10, 2024 3:21 pm Thanks all,
my course is set. 2024 RMD before 2024 Roth conversion. --vtMaps
If you don't need the RMD or don't want to pay the taxes on it, you can donate some or all of it following QCD procedures, since you are over 70.5. Then you can convert.
LookinAround
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Re: Roth conversions in the year before my RBD

Post by LookinAround »

secondcor521 wrote: Sat Feb 10, 2024 11:39 am You can do Roth conversions any year you want, whether subject to RMDs or not.

As long as your withdrawals (excluding Roth conversions, including QCDs) exceed your RMD every year, I personally think you have met the tax requirements. Several here suggest a requirement that the Roth conversions happen after the RMD is satisfied; I don't personally think that's correct, but I really don't want to debate it either.

Safest and usually best course of action, then, would be to take your 2024 RMD this year, then do any Roth conversion you want. That meets your RMD/RBD requirements, prevents two RMDs next year, and supports your desire to do a Roth conversion.

You could do as you suggest also, but most people seem to think that taking two RMDs in a single year creates a "pulse" of higher income which can have undesirable taxation. I guess that would depend on the size of the RMDs and the rest of your tax situation, but it's a consideration.

Remember, of course, that your RMD (minus any QCD) plus your Roth conversions will generally be taxed at ordinary income rates.
From what I've read, the RMD must be satisfied before the conversion (unless something changed recently)

RMD RULES AND ROTH CONVERSIONS: TODAY'S SLOTT REPORT MAILBAG (2021)
In answer to a question
The rules say that if you have an RMD for a year, you must satisfy it before doing a conversion. RMDs can be aggregated and taken from one of your IRAs. Therefore, you could satisfy your RMD from the IRA that is being converted by taking it from another IRA prior to doing the conversion.
Exchme
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Re: Roth conversions in the year before my RBD

Post by Exchme »

I question whether it's a good idea to do Roth Conversions at all at this point. When I model our situation, Roth Conversions after starting RMDs are a wash at best. In fact, the only conversions the model thinks are not strongly negative are just to fill out the IRMAA tier or tax bracket, whichever is smaller. The economics get worse over time as the RMD rises, there is less time for the savings in tax drag to amount to anything and if there is a spouse, there are inherently fewer years that a surviving spouse might pay tax as a single.
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vtMaps
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Re: Roth conversions in the year before my RBD

Post by vtMaps »

Exchme wrote: Sun Feb 11, 2024 7:00 am When I model our situation, Roth Conversions after starting RMDs are a wash at best.
Conversions are also a wash for us (plural). The reason we are doing conversions now is not for us, but for one of us (the survivor). When one of us is a survivor, the survivor's income will go down (loss of one social security payment), the tax bracket will go up, and many expenses will stay the same (property tax, home maintenance, car, etc). Therefore we feel that doing Roth conversions is a wash while we're both alive, but a great benefit for the survivor's tax management.

Another consideration for us is Vermont income tax. There is a large Social Security tax hump in Vermont, no SS income is taxed until AGI hits $65k, and then the SS income is fully taxed at $75k ($60k - $70k for single person). With another year or two of Roth conversions (staying under IRMAA), we will be able to avoid the Vermont tax hump.

--vtMaps
"Truly, whoever can make you believe absurdities can make you commit atrocities" --Voltaire, as translated by Norman Lewis Torrey
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celia
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Re: Roth conversions in the year before my RBD

Post by celia »

vtMaps wrote: Sun Feb 11, 2024 7:36 am
Exchme wrote: Sun Feb 11, 2024 7:00 am When I model our situation, Roth Conversions after starting RMDs are a wash at best.
Conversions are also a wash for us (plural).
It doesn't make sense to talk about a "wash" since taxes will eventually need to be paid on the tax-deferred anyway (unless you QCD). By not converting when you have the opportunity before RMDs start, you just risk the account(s) growing and thus paying even more taxes on larger RMDs down the road.

We decided to "level out our taxes" over our remaining years and did that by "leveling out" our Taxable Income (a line on our tax return). It has worked out well so far into our 70s.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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