If my RMD (required minimum distribution) is being done via equal monthly distributions on the 15th of the month, do I have to wait until after December 15, i.e., December 16 thru December 31, to do a Roth conversion?
The IRS does require that required minimum distributions (RMDs) be withdrawn prior to performing a Roth conversion, says Steve Cruice, CPA, CFP®, and owner of Simply Steward, LLC.
“Converting funds from a traditional IRA to a Roth IRA is considered a rollover transaction,” he says. IRS Publication 590-B states that “[a]mounts that must be distributed (required minimum distributions) during a particular year aren’t eligible for rollover treatment.”
“So, this tells us that an amount determined to be an RMD or portion or an RMD cannot be rolled over,” Cruice explains, “but, what about the timing?” Treasury Regulation 1.402 (c) – 2 has a question and answer section that addresses this question. The question in the regulation is “[w]hen is a distribution from a plan a required minimum distribution under section 401(a)(9)?”
To summarize the Treasury Regulation answer, Cruice says, a distribution will be considered a part of the year’s RMD until the full RMD amount has been satisfied. Up until the full RMD has been satisfied, the funds are not eligible to be rolled over. Here’s an excerpt from the regulations answer: “if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies.”
If flexibility on Roth conversion timing is important, he notes RMDs may be taken as a lump sum (for example, at the beginning of the year). “This approach leaves the rest of the year to determine when (or if) to do a Roth conversion.”
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If my RMD (required minimum distribution) is being done via equal monthly distributions on the 15th of the month, do I have to wait until after December 15, i.e., December 16 thru December 31, to do a Roth conversion? Subscribe for full article
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