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I must take my first RMD this year. I want to convert the money that remains after taxes are paid on the distribution and convert to a Roth. The IRA is at broker "S" and my Roth is at broker "V". Do I need to have broker "S" make a direct transfer on can I just take their check and send it on to the Roth broker? I must be overlooking wherever this is spelled out.
Thanks,
Ted
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I want to convert the money that remains after taxes are paid on the distribution and convert to a Roth.

cue music....You can't always get what you want....

I must be overlooking wherever this is spelled out.

No, you aren't, because you cannot convert an RMD from a traditional IRA to a Roth IRA.

You are allowed to convert some of your remaining traditional IRA, but you would owe additional taxes on this conversion.

AJ
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I must be overlooking wherever this is spelled out.

No, you aren't, because you cannot convert an RMD from a traditional IRA to a Roth IRA.


there must be a reason for this..but i don't see it. Any ideas?



You are allowed to convert some of your remaining traditional IRA, but you would owe additional taxes on this conversion.


part of why i'm converting bits now, to minimize (a bit) RMDs when i get there.
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there must be a reason for [no conversion of RMD's]..but i don't see it.

The whole point of the RMD is to exhaust retirement accounts during your lifetime. The Roth's lack of such a requirement is unique among retirement accounts.

Phil
Rule Your Retirement Home Fool
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The IRA is at broker "S" and my Roth is at broker "V". Do I need to have broker "S" make a direct transfer on can I just take their check and send it on to the Roth broker?

Unless things have changed, the best way to do this is tell the broker V to get the IRA from broker S. You want to be sure that none of the money, stocks, etc., passes through your hands at any time.
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The IRA is at broker "S" and my Roth is at broker "V". Do I need to have broker "S" make a direct transfer on can I just take their check and send it on to the Roth broker?

Unless things have changed, the best way to do this is tell the broker V to get the IRA from broker S. You want to be sure that none of the money, stocks, etc., passes through your hands at any time.


That's correct for a routine conversion, but the OP wants to convert an RMD, which is not allowed.

Ira
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That's correct for a routine conversion, but the OP wants to convert an RMD, which is not allowed.

I overlooked that he wanted to convert the RMD. I would like to do that too, but I already knew that that was not allowed.

What I now do is convert from IRA to Roth IRA as much as I can each year, consistent with tax considerations, to lower the amount of the RMD for the next year.
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....That's correct for a routine conversion, but the OP wants to convert an RMD, which is not allowed.....


If the OP has some earned income and is eligible for any deductable retirements accounts(IRA, 401K, etc) then the RMD can be deposited into one of those to get an offsetting deduction so the net tax effect will be essentially zero.

If they are over 70 and not working that does not help much, but people who are younger and still working can often do this with RMD's from inherited IRA's
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Watty 56, I know you're trying to help, but you're posting a lot of incorrect information.

If the OP has some earned income and is eligible for any deductable retirements accounts(IRA, 401K, etc) then the RMD can be deposited into one of those to get an offsetting deduction so the net tax effect will be essentially zero.

No, no, no! Since OP is subject to RMD's by definition (s)he cannot contribute to a traditional IRA under any circumstance. Period. One can contribute to employer plans if still working at 70 1/2 (and delay RMD's from that plan), but those contributions must come directly from salary/wages, not external contributions. Some employer plans allow for rollovers in from other retirement accounts, but in no case can an RMD be rolled anywhere. Period.

If they are over 70 and not working that does not help much, but people who are younger and still working can often do this with RMD's from inherited IRA's

Wrong again. RMD's, including those from inherited accounts, cannot be rolled over. Period.

The references are IRS Pubs 575 and 590.

Phil
Rule Your Retirement Home Fool
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If they are over 70 and not working that does not help much, but people who are younger and still working can often do this with RMD's from inherited IRA's

Wrong again. RMD's, including those from inherited accounts, cannot be rolled over. Period.


I read the statement as using RMD to make a contribution to an IRA/401K.

Even though contributions to a 401K must be directly withheld, it is possible to increase contributions and use an IRA RMD for regular expenses.
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there must be a reason for [no conversion of RMD's]..but i don't see it.

The whole point of the RMD is to exhaust retirement accounts during your lifetime. The Roth's lack of such a requirement is unique among retirement accounts.



OK. i thought the point of RMD was to get the taxes from the the IRA sooner .

moving to Roth would still get the tax.
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OK. i thought the point of RMD was to get the taxes from the the IRA sooner .

moving to Roth would still get the tax.


The IRS do not care: you still cannot do it. It makes sense to me that it should be OK, but making sense and IRS regulations are not normally discussed in the same sentence.
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OK. i thought the point of RMD was to get the taxes from the the IRA sooner .

moving to Roth would still get the tax.

The IRS do not care: you still cannot do it. It makes sense to me that it should be OK, but making sense and IRS regulations are not normally discussed in the same sentence.



i'm an outlier ..IRS usually does make a kind of sense to me.*

usually, i can see where if the rule were different, someone could take advantage /Or someone would lose advantage.

.. i don't really see either with the "convert IRA to Roth OK; convert RMD to Roth not OK"

(ALL idle curiosity, of course --it IS what it is)





* maybe because i sort of worked in Tax Law for a few years
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0x6a74:

{{{OK. i thought the point of RMD was to get the taxes from the the IRA sooner .

moving to Roth would still get the tax.}}}

<<<The IRS do not care: you still cannot do it. It makes sense to me that it should be OK, but making sense and IRS regulations are not normally discussed in the same sentence.>>>



"i'm an outlier ..IRS usually does make a kind of sense to me.*

usually, i can see where if the rule were different, someone could take advantage /Or someone would lose advantage.

.. i don't really see either with the "convert IRA to Roth OK; convert RMD to Roth not OK" "


I will take a shot at this.

RMD is a required minimum distribution, and when taken, it is outside of any IRA umbrella. In addition, the amount of the RMD for any given year (other than the initial year for those with birthdays later than June 30, who have a delay and double up option) is fixed as of December 31 of the prior year.

Convert is a term of art and conversions can only be done on funds within and IRA.

Given that RMD amount is fixed as of prior year (subject to . . .) and that RMD is outside of IRA umbrella, it cannot be converted because conversion is oly for amounts in the IRA umbrella.

As a reminder, Roth IRAs do not require RMDs.

Regards, JAFO
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...I read the statement as using RMD to make a contribution to an IRA/401K.

Even though contributions to a 401K must be directly withheld, it is possible to increase contributions and use an IRA RMD for regular expenses.



That is what was intended.


Sorry if it was not as clear as it could have been.


For a non-spouse with an inherited IRA, withdrawing some money each year and putting it into a deductable retirement account like an 401k this way also has the benefit of making 401k money eligible to roll into a Roth someday and if this money is inherited again someday after going into a 401K then it will be treated like a normal inherited IRA and not with more restrictive rules that apply when the next generation inherits an already inherited IRA.

Greg
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usually, i can see where if the rule were different, someone could take advantage /Or someone would lose advantage.

.. i don't really see either with the "convert IRA to Roth OK; convert RMD to Roth not OK"


Seems pretty clear to me. **

RMDs get the money out of the IRA (or other retirement account) umbrella. The withdrawal itself is taxable, and any earnings the withdrawn money generates are also taxable.

If you could roll the RMD into a Roth, only the withdrawal would be taxable. The earnings would continue to be tax sheltered.

--Peter


** Like you, I find a lot more common sense in the tax law than most people, probably from working as a CPA and tax preparer for the bulk of my career.
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RMDs get the money out of the IRA (or other retirement account) umbrella. The withdrawal itself is taxable, and any earnings the withdrawn money generates are also taxable.

If you could roll the RMD into a Roth, only the withdrawal would be taxable. The earnings would continue to be tax sheltered.



aha!

the difference is that 'conversions' are voluntary .. if we let you convert, we let your gains be not-taxable in order to get the tax on 'principle'
when we force an RMD, we want the tax on both.




** Like you, I find a lot more common sense in the tax law than most people, probably from working as a CPA and tax preparer for the bulk of my career.


don't know i'd call it 'common sense' so much as "a KIND of logic"

......perhaps a long enough career in the business and it begins to look more like Common Sense (i was a Muni Bond lawyer for only four yrs)

(>:
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Let me see if I understand.

After I take my RMD and pay taxes on it the after tax balance of the RMD proceeds becomes "regular" money and can't be sheltered.

After this is done can I take some MORE money from within the IRA, pay the tax on that money and then move THAT money directly from the iRA to the Roth?

Sorry for the caps, just trying to be clear. Why would I consider doing this? Because I expect taxes to go up in the future.

Ted - who must take an RMD this year and every year in the future.
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After I take my RMD and pay taxes on it the after tax balance of the RMD proceeds becomes "regular" money and can't be sheltered.

Correct.

After this is done can I take some MORE money from within the IRA, pay the tax on that money and then move THAT money directly from the iRA to the Roth?

Basically correct. Let me re-state your sentence. You can take more money from withing the IRA and move that money to a Roth. Any amount that you do move is taxable income.

Technically, this is called a Roth conversion. Google that term, and you'll get a week's worth of reading.

Why would I consider doing this? Because I expect taxes to go up in the future.

Basically, yes. More specifically, you expect YOUR taxes THIS YEAR to be lower than your taxes in the future. You are choosing to pay the taxes now rather than waiting to pay them later.

For some, a conversion is a good idea. For others, not so good. And for some, it's hard to tell.

Personally, I did a Roth conversion in a year where I had unusually low income. I paid almost no tax at all on the conversion. (IIRC, some slipped me into the 10% bracket. Without the conversion I would have had negative taxable income.)

--Peter
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Sorry for the caps, just trying to be clear. Why would I consider doing this? Because I expect taxes to go up in the future.



or because you want to decrease your IRA to decrease your RMDs (doesn't much decrease your tax bill, but does allow some flexibility)

or because Roths aren't taxable to heirs and don't have RMDs
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or because Roths aren't taxable to heirs and don't have RMDs

ROTH IRAs aren't subject to income tax. ROTH IRAs are subject to estate taxes. If the estate is large enough to be paying estate taxes, then converting to a ROTH could decrease estate taxes.
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or because Roths aren't taxable to heirs and don't have RMDs

I'm usually a fan of brevity, but lest lurkers misinterpret,

1. Distributions from inherited Roth IRAs may be taxable. See Pub 590.

2. Inherited Roths are subject to RMD's.

Phil
Rule Your Retirement Home Fool
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or because Roths aren't taxable to heirs and don't have RMDs
====================
I'm usually a fan of brevity, but lest lurkers misinterpret,

1. Distributions from inherited Roth IRAs may be taxable. See Pub 590.

2. Inherited Roths are subject to RMD's.



thsnks.. for calling 'brevity' what i would call wrong and Wrong.





<grump> ..i'll have to research since i've been converting Roth with that in mind.
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After this is done can I take some MORE money from within the IRA, pay the tax on that money and then move THAT money directly from the iRA to the Roth?

Why would I consider doing this? Because I expect taxes to go up in the future.


You can, of course, move stuff, subject to the law, from an IRA to a Roth-IRA for other reasons too. If you reduce the amount in your IRA, you reduce the size of future RMDs. In the right situation, you may prefer to do that. You do not have to roll over the entire IRA into the Roth-IRA at once. My strategy is to roll over as much as I can afford to pay taxes on, and not enough to move into a higher tax bracket.

Of course, we never know what the clowns in Congress will do. They may make withdrawals from Roth IRAs taxible. They may require IRAs and Roth IRAs to contain 30% or more in treasury bonds. we will never know.
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thsnks.. for calling 'brevity' what i would call wrong and Wrong.

<grump> ..i'll have to research since i've been converting Roth with that in mind.



Phil, as always, is correct. Income tax on inherited ROTH IRA distributions is possible, but is not as serious as it may first appear.

RMDs are required on inherited IRAs. A spouse who inherits an TIRA can transfer it to their name and avoid inherited RMD requirements. I believe, the same is true for a ROTH.
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"Of course, we never know what the clowns in Congress will do. They may make withdrawals from Roth IRAs taxible. They may require IRAs and Roth IRAs to contain 30% or more in treasury bonds. we will never know. "

Hi JeanDavid,

Yup. I was thinking, if they do that then folks might dump their IRAs, so... Maybe they announce it over a weekend and they add a MAD provision. Whats a MAD provision? Maximum Allowed Distribution! Maybe you could exceed the MAD but large penalties would apply. Also with the kicker that the treasuries could not be sold until all other assets had been sold...

Take care, Ken
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If your 70th birthday is before July 1 of this year, then this will be your first RMD year, and your required beginning date (RBD) will be April 1, 2012...the date by which your first RMD must be removed from your Traditional IRA. All subsequent RMD's in future years must be out of the IRA by 12/31 of that year.

There are 2 and only 2 things that you can do with this year's RMD. You may withdraw it and report it as ordinary income on your 2011 tax return (assuming your IRA(s) have no basis) by the RBD or you may have it transferred directly to the charity of your choice without having to declare it as ordinary income to you (2011 only), again, by your RBD. You may not convert this RMD to a Roth IRA and you may not transfer it out of the IRA.

The balance remaining in your TIRA(s) after taking out the RMD may be converted to a Roth IRA as you see fit. Again, assuming there is no basis in your TIRA(s), all Roth conversions will be reportable that year on your tax return as ordinary income.

Now, you could take your RMD dollars...or any other $$ you wish to use...and contribute to your Roth IRA, as long as you have earned income (W2 income or Schedule C self employment income) that at least equals your Roth contribution. This is simply a household cashflow exercise.

BruceM
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If your 70th birthday is before July 1 of this year, then this will be your first RMD year, and your required beginning date (RBD) will be April 1, 2012...the date by which your first RMD must be removed from your Traditional IRA. All subsequent RMD's in future years must be out of the IRA by 12/31 of that year.

Just a clarification, even though the first RMD might be delayed until the next calendar year, delaying the first RMD to the next calendar year does not change the requirement for the second RMD.
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<grump> ..i'll have to research since i've been converting Roth with that in mind.


Phil, as always, is correct. Income tax on inherited ROTH IRA distributions is possible, but is not as serious as it may first appear.

RMDs are required on inherited IRAs. A spouse who inherits an TIRA can transfer it to their name and avoid inherited RMD requirements. I believe, the same is true for a ROTH.


once again i looked at PUb.590.

Look like
• only way an inherited Roth is taxable (as income) is if it's less that five years old, and

• RMD (on inherited Roth) is like tIRA "as though ..owner died... before required beginning date" /but(?) "generally Roth must be distributed by the end of the fifth calendar year of the owner's death"

if i'm reading this correctly, i'm fine (this is one time, it's all about ME <g>) -- my sister is my only heir and she's likely to empty both accounts (IRA and Roth) ASAP .. so anything i can convert saves her taxes on the IRA


( assuming i've haven't spent it all on Twinkies or lost it all in the Market )
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if i'm reading this correctly, i'm fine (this is one time, it's all about ME <g>) -- my sister is my only heir and she's likely to empty both accounts (IRA and Roth) ASAP .. so anything i can convert saves her taxes on the IRA

Yes, and no.

Any taxes paid, also reduce the estate. If your estate is large enough to trigger inheritance taxes, then pre-paying income taxes is good. Otherwise, it is a trade-off of your current income tax rate compared to her future income tax rate.
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Yes, and no.

Any taxes paid, also reduce the estate. If your estate is large enough to trigger inheritance taxes, then pre-paying income taxes is good. Otherwise, it is a trade-off of your current income tax rate compared to her future income tax rate.



yes. i forgot to mention --

my estate isn't likely to meet the maz /
and right now, i'm in the bottom federal and state brackets and she's in the top
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