RMD suspension…Trap?
If tax rates go higher (which is not a bad bet considering the deficit and all the stimulus) won’t a lot of people look back on ’09 and wish they had taken their RMD and maybe even more?
If one is apt to take a distribution, minimum or otherwise, wouldn’t it make sense to use this opportunity to put that money into a Roth via a conversion? RMD money can not be converted but since there is no RMD this year why not take that amount and convert it??
Permalink Submitted by Clyde Wolf on Mon, 2009-03-16 19:50
Blaxer,
Yes, doing a conversion to a ROTH IRA now while stock prices are on the low side means your money will purchase more shares for the ROTH IRA. You get the same tax bill.
Or as you point out just take a distribution, lowering your RMDs for future years. Be careful to not push your 2009 taxable income to the next higher tax bracket.
For both of these, you should make sure you remain out of the withholding/prepaying penalty.
If you are in the RMD age range, you can also make a charitable contribution of up to $100,000 from your TIRA. The advantage here this will not affect the taxable part of your SS benefit. This is especially nice if you do not itemize your deductions. Also your future RMDs will be calculated using a lower year end balance.