Roth Conversion in RMD Year
Hello,
I have a client that is turning 72 in September (i.e. an RMD year). I know that once you are age 72, you must take your RMD before completing a Roth conversion; however, can the client complete a Roth Conversion this year, before attaining age 72 and therefore, not yet required to take the RMD. In other words, could they do the Roth Conversion now, in April, since they don’t turn 72 until September and avoid the RMD all together?
Permalink Submitted by Alan - IRA critic on Fri, 2021-04-09 21:26
No. In any RMD distribution year, the first distribution taken that year is deemed to apply to the RMD for the account issuing the distribution. As such, that distribution up to the RMD amount cannot be converted. In effect, the client is treated as if they reached 72 on Jan 1. While it sounds like client was planning on converting the entire IRA balance, it would be OK to take the RMD first (< 4% of the account balance), then convert the remaining 96%. Of course, converting a large amount in a single year would probably spike the tax rate for that year, making such a large conversion unwise.