RMD Calculation and Direct Roth Conversions: Today’s Slott Report Mailbag

By Ian Berger, JD
IRA Analyst

Question:

At age 71, I’m not yet subject to required minimum distributions (RMDs) from my IRA or workplace retirement accounts.  However, I am required to take annual RMDs from a pre-2020 inherited IRA and a pre-2020 inherited Roth IRA.

Am I required to take the RMDs from these inherited accounts prior to doing a Roth conversion from my own IRA?  Does that change in the year in which I turn age 73?

Answer:

No. You are not required to take RMDs from your inherited accounts before doing a Roth conversion from your own IRA. That will not change starting in the year you turn age 73. But before doing a Roth conversion in that year (or in a subsequent year), you will need to first take the RMD from your own IRA.

Question:

I am 69 years old and plan to retire soon. I have an old Keogh Profit-Sharing Plan that I want to start converting into a Roth IRA.

I’m getting conflicting answers on how this can be done properly. One IRA custodian tells me that I must convert it first into a traditional IRA and then convert it into a Roth. Another IRA custodian tells me that I can convert it directly into a Roth. Both options require me to pay full income taxes on the amount being transferred.

Can you give me some guidance on what you think is the right way to do this?

Thanks,

Mike

Answer:

The first custodian gave you bad advice. For many years, the tax law has allowed direct conversions of retirement plan distributions to a Roth IRA. So, there is no need to first roll over your Keogh plan funds to a traditional IRA before doing the conversion.

If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.