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I believe we can withdraw some amount from our IRA's every year and convert to a Roth. Is this actually do-able? What are the mechanics? We each have IRA's and Roths in our own names. We both get Social Security. Can any part of my RMD be used to fund a Roth?

CNC
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Hi CNC -

You have to take your RMD as a withdrawal (or as a qualified charitable distribution), not as a Roth conversion. That said, if you take the RMD as a withdrawal, once that money is in your hands, you don’t have to spend it. If you’d like, you can either invest it in an after tax account or use that money to pay the taxes due on the money you are converting from your Traditional IRA to your Roth IRA.

The mechanics of a Roth conversion are pretty straightforward. Your broker probably has a form, possibly even a do-it-yourself online process, that lets you kick it off. Once it’s complete, you’ll get tax forms in the mail showcasing the amount you withdrew from the Traditional and how much of it was deposited into the Roth account.

Do note that the money converted to a Roth is typically taxed as ordinary income. If you have a non-zero tax basis in your Traditional IRA (such as from making non-deductible contributions), there is a process to allocate your withdrawal across both the taxable growth and the non-taxed basis, which may help your tax bill somewhat.

Regards,
-Chuck
Discovery/HR Home Fool
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I believe we can withdraw some amount from our IRA's every year and convert to a Roth.

Yes you can, and this is a good year to do it with no RMD requirement.

What are the mechanics?

Assuming your Roth and T IRA are with the same institution, then the process should be easy. They should have a single form you complete to facilitate the transfer directly from one account to the other.

Can any part of my RMD be used to fund a Roth?

No, but as stated above, there is no RMD this year. Assuming RMDs are back next year, you can still perform a rollover but only with funds in excess of the RMD amount.
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I believe we can withdraw some amount from our IRA's every year and convert to a Roth. Is this actually do-able?

Yes. But there are a couple of rules you need to be aware of when doing this

If you do a 'rollover', where you take a withdrawal from your TIRA with the intent of putting it back within 60 days, you may redeposit this to your Roth IRA (RIRA) and it will qualify as a Roth conversion as long as you got it into the Roth within the 60 day period. The nice part about this is the rollover-conversion does not count as a rollover for the once-per-12-month rule.

As mentioned, there is no RMD this year. But during a normal RMD year, the fate of the RMD is to be withdrawn before the end of the year (by April 1st of the first RMD only). The IRS considers any withdrawal to be first the RMD amount. The RMD amount withdrawn is yours to do with as you see fit as the amount withdrawn to meet the RMD requirement no longer has any RMD identity...its just fungible cash in your bank account. If you wish to put an amount equal to the RMD (or not equal to it) into your RIRA the IRS will consider this a contribution, not a Roth conversion, which is fine, providing you + Spouse have at least that amount as earned income from employment, including self employment and the contribution does not exceed the annual maximum contribution and that your Adjusted Gross Income does not exceed the annual maximum.

There is no age limit, conversion maximum or income limit on Roth conversions

We each have IRA's and Roths in our own names

I assume you mention this to show your IRAs are not inherited, as the only way you can title an IRA is to you, the Individual (the I in IRA). IOW, there is no such thing as a jointly held IRA, although your IRA should have a primary beneficiary, usually the spouse. Sometimes this is confused as a jointly held IRA.

If you have further questions, your IRA custodian should be able to assist you

BruceM
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If you have further questions, your IRA custodian should be able to assist you

BruceM


I have the paperwork from my custodian to transfer $20K from my regular IRA to my Roth. No other withdrawals so far this year. We are fortunate in that we haven't needed to withdraw from an IRA this year. The tax accountant says no effect on our tax liability this year. Yaaay!

Thanks for the many comments and suggestions.

CNC
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no effect on our tax liability this year

You have me confused. An IRA to ROTH conversion is taxable. There are no exceptions. The taxes do not have to be paid out of the IRA, but they are taxable as are every IRA withdrawal.
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The taxes do not have to be paid out of the IRA, but they are taxable as are every IRA withdrawal.

Our deductions exceed our income for this year. (We have very little income this year.)

CNC
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Our deductions exceed our income for this year. (We have very little income this year.)

I would recommend that you do conversions up to the level of your deductions, and possibly enough to max out the 10% bracket.

AJ
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"Our deductions exceed our income for this year. (We have very little income this year.)"

I would recommend that you do conversions up to the level of your deductions, and possibly enough to max out the 10% bracket.



Top of 10% bracket is ~$20,000. Top of 12% is ~$80,000. It's probably worth it to pay the extra 2% to do the larger conversion.


Look to future years. What is your income going to be and what tax rate will you be paying? It might well be worth it to pay 10% or 12% this year rather than 22% later on. Also keep in mind the possibility that you may be filing as single instead of joint.
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