Can you use your RMD payment to fund a Roth?
Can a person over the age of 70.5 use their RMD to fund a Roth Conversion?
This year is an exception, but in normal RMD circumstances, once the tax is paid on a RMD, is that money considered non-qualified, or is it elligible to be converted to a Roth since taxes have been paid?
Permalink Submitted by Alan Spross on Sat, 2009-04-18 00:23
In years other than 2009, an RMD must be taken prior to doing a Roth conversion for additional amounts. The tax return will therefore show a taxable RMD plus a taxable Roth conversion. Therefore, the RMD itself cannot be converted but cash from the RMD could be used to pay the tax bill for the combination of the taxable RMD and the conversion.
The basis reason why the RMD itself cannot be converted is that an RMD is not eligible for rollover, and a Roth conversion is a rollover, albeit a taxable rollover.
Permalink Submitted by Danielle Hayes on Mon, 2009-04-20 13:21
Relative to the reply from Alan oniras –
Please clarify “combination of the taxable RMD and the conversion”
Would that mean that instead of the client paying tax twice, once on RMD, then again on the Roth contribution – there would be some sort of tax relief via a combination of the 2 happening simultaneously?
Permalink Submitted by Alan Spross on Mon, 2009-04-20 17:38
No, the client would pay taxes on the total of the conversion and the RMD. There is no savings by doing both in the same year. However, in 2009 when there is no RMD, the conversion could be done without the added income from the RMD, since there is no RMD.
In years other than 2009, although both the RMD and the conversion will be taxable, the cash from the RMD can be used to pay the additional taxes due as the result of the Roth conversion.