Multiple RMDs & Roth Conversions
I have a client that turned 72 this year and has until April 1 of next year to complete the RMDs from his IRAs. He has multiple IRAs, one of which he has taken out the respective RMD for the year but has not taken out the respective amount for the other two IRA RMDs. I understand the first dollars out rule with the RMD & a potential Roth conversion, in that you must satisfy the RMD before you can perform a Roth conversion. Where I cannot seem to find a straight answer is how the other IRA RMDs that have not been satisfied affect the Roth conversion.
If IRA #1 has satisfied the RMD but IRAs #2 & #3 have not yet, can we still perform a Roth conversion from IRA #1 because it’s respective RMD has been satisfied? As long as we satisfy the RMDs for IRAs #2 & #3 by April 1 of next year? Or does the aggregation rule kick in and say that we must satisfy the entire RMD amounts for all 3 IRAs before we do any Roth conversion?
Permalink Submitted by Alan - IRA critic on Mon, 2022-07-25 20:23
You can convert from any IRA for which the RMD has already been completed for that IRA. The RMDs for other IRAs do not need to be completed before converting from an IRA for which the RMD had been completed. This conclusion is based on QA 4 of IRS Reg 1.408-8. Parsing this with the aggregation rules can be confusing. In your example, if the total RMD for all 3 IRAs has been satisfied, then a conversion can be done from any of them. But if only the RMDs for 2 and 3 are completed but not one, a conversion is only allowed from either 2 or 3 from which the RMD for that particular account was distributed. If a taxpayer wanted to convert early in the year, it is possible to partition the IRAs in the prior year to produce an account from which the RMD and a conversion can be done early in the year, and the RMDs for the other IRAs can wait until late in the year. When doing this the RMD and the conversion account would usually come close to entirely draining that account. Meanwhile, the other accounts from which the RMD would be done later would only be reduced by their respective RMDs.
Permalink Submitted by ssel on Tue, 2022-07-26 00:21
Can those accounts all be with the same custodian?
Permalink Submitted by Alan - IRA critic on Tue, 2022-07-26 00:51
Yes. Whether the accounts are with the same custodian or not is immaterial.