timing to take both rmd and conversion in same year
I’ll be 70 1/2 in October and plan my first rmd mid November; I also want to continue with partial conversion to roth (this will be 4th year). Should I do the conversion 1st in late September? or move rmd to 1st of October and do conversion in November? I’m not sure what the tax consequences would be due to timing. I know I will have to pay taxes on both amounts, as well as social security. Also, will the option to directly have rmd transferred to a charity be available again? Would be nice.
Thanks mbd
Permalink Submitted by Alan Spross on Fri, 2010-08-13 02:49
You need to take your RMD prior to converting in each year from here into the future. How you determine the respective dates is not that important in the long run, but very generally you should probably let the largest amount determine the dates. For example, if your planned conversion will be larger than your RMD, then you should let your conversion date determine how long you can wait to take the RMD. If the RMD is larger, then you may want to defer the RMD as long as possible and also defer the conversion along with it. If the market drops so that you want to take advantage of the low values for your conversion, then you would move your RMD date up to allow you to take it prior to the conversion. The important thing is to always take out your RMD first.
The QCD (qualified charitable distribution) is still pending in Congress, and like many other tax related matters, Congress is probably going to make you wait until the lame duck session before acting. At this point, it is hard to predict what they will do. 6 months ago it looked like the QCD was a virtual certainty, but no longer. If you take your RMD separately, it will eliminate your option to apply it to the QCD. You could always do a QCD first, and if Congress passes it you will be OK. But if they don’t, you will have a taxable distribution and will have to itemize the contribution as if you took the RMD and then contributed it to charity.