Ask the Expert: Can I convert a required minimum distribution?
When I’m 72, my projected required minimum distribution will luckily be more than I need to live on. Would transferring money from my IRA to my Roth IRA (after paying taxes, of course), count toward my RMD?
No. Moving an RMD you don’t need to live on into a Roth IRA is a nice idea, but it’s not an option.
You can’t transfer (aka “convert”) any part of your RMD into a Roth IRA. If you want to do a Roth conversion after age 72, you must take your RMD first. Then, in a second distribution, you can convert some of your remaining IRA balance into a Roth IRA. That’s an expensive strategy because both distributions are taxable.
Let’s say your RMD is $20,000 and you’ll owe a $5,000 tax on it. None of the $15,000 RMD after-tax balance can be converted to a Roth IRA. To generate $15,000 for a Roth conversion, you must take a second $20,000 distribution — and pay another $5,000 of tax on it.
If you don’t need your entire RMD for living expenses, you may want to consider a different plan: Have your IRA make a Qualified Charitable Distribution to an eligible charity. A QCD counts toward your RMD, and it isn’t taxable.
Going back to my example, your RMD is $20,000. If your IRA makes a $7,500 QCD to your favorite charity, you only need to withdraw an additional $12,500 to fulfill that $20,000 RMD obligation — and only $12,500 will be added to your taxable income.
This strategy is available to everyone over 70½, and it’s particularly appealing for taxpayers who don’t itemize deductions. In next week’s column, I’ll explain why.
The bottom line
You cannot convert part of your RMD to a Roth IRA.
