CARES Act 2020 RMD Waivers

Submitted by Rebecca Hines on Thu, 2020-12-03 17:50

I have a beneficiary IRA from my father who passed away in 2005 and I have been taking RMDs each year since then. I want to convert this year’s (waived) “RMD” to a ROTH. What is the process for this?

I cannot make a direct contribution to a ROTH (household income too high). Do I “transfer” the distribution to a Traditional IRA and do a back door conversion to a ROTH?

If the distribution gross is ~$10K and ~$8K after taxes what amount can I put in the new IRA?
Thank you!



Submitted by Alan - IRA critic on Thu, 2020-12-03 18:18

This cannot be done. Even though there are no RMDs in 2020, a non spouse beneficiary IRA can never be converted to an owned or inherited Roth IRA. The basic reason  is that a conversion is a distribution + rollover, and a non spouse inherited IRA distribution is not eligible for rollover. You could convert from your OWN IRA if you have one, but not from the inherited IRA. If you do not have an owned IRA and have earned income, you could start doing back door Roths (make ND TIRA contribution and then convert it), but that is limited to the IRA regular contribution limit. Or if you are working and have a workplace retirement plan (401k or 403b), you could direct some of your pre tax contributions to the Roth option if offered. 

Submitted by Rebecca Hines on Thu, 2020-12-03 19:35

Thank you for your answer!  I do have my Own IRA as well and was considering doing a back door conversion of part of that each year.  I understand that there is a limit for yearly ND TIRA contributions, but there is no limit of converting balances from my TIRA to a ROTH, right?  I just want to stay within my current marginal tax rate, right?  I have already started to move my 401(k) contributions to the ROTH option, so I am good there.  Thanks so much!!

Submitted by Alan - IRA critic on Thu, 2020-12-03 19:46

  • There is no dollar limit for conversions. However, if you have pre tax dollars in your own TIRA, converting after you make ND contributions will result in most of your conversion being taxable. The way around this is to roll your pre tax owned TIRA amount (not your basis reported on Form 8606) to your 401k plan if your plan will accept IRA rollovers. Then only your basis will be left in your TIRA and you can then convert it tax free, and continue making ND contributions followed by conversions each year.
  • Yes, you would normally want to convert only within your current rate unless you expected your current rate to rise after retirement. Then you might convert into the next bracket. Conversely, if you expected your rate to decline in retirement, you would make pre tax contributions now and stop converting. It is easy to figure your current tax rate on conversions, but estimating your rate in retirement is just a guess since you must make several assumptions, some of which could turn out wrong especially if retirement is many years down the road.

Submitted by Rebecca Hines on Thu, 2020-12-03 20:11

Got it!  Thank you so much for your time!!

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