Roth conversion from RMD…?
Hello,
I’ve just read some advice from a syndicated columnist in a local newspaper which appears to claim one can use part or all of his RMD in a Roth conversion. Here is what he says:
“If you don’t need the money for supporting your standard of living, one option is to treat the RMD as a Roth conversion. Open a Roth and re-invest the after-tax proceeds. In the Roth account, all future growth and distributrions will be tax-free.”
I thought this was not allowed…
Can this actually be done…? Seems too good to be true…
Thanks…!
Permalink Submitted by Alan Spross on Tue, 2010-12-28 04:39
His advice is incorrect and misleading. Perhaps the local paper should search out a different source for their articles.
RMDs are not eligible for rollover, either to a traditional IRA or a Roth IRA. After the RMD has been satisfied, a taxpayer can convert additional amounts, but this is clearly not what was stated.
Hopefully, the article will not produce too many failed conversions and possible 6% excise taxes if not corrected in time. Here is a copy of IRS Reg 1.408A-4, Q&A 6:
>>>>>>>>>>>>>>>>>
Q–6. Can an individual who has attained at least age 70 1/2 by the end of a calendar year convert an amount distributed from a traditional IRA during that year to a Roth IRA before receiving his or her required minimum distribution with respect to the traditional IRA for the year of the conversion?
A–6. (a) No. In order to be eligible for a conversion, an amount first must be eligible to be rolled over. Section 408(d)(3) prohibits the rollover of a required minimum distribution. If a minimum distribution is required for a year with respect to an IRA, the first dollars distributed during that year are treated as consisting of the required minimum distribution until an amount equal to the required minimum distribution for that year has been distributed.
(b) As provided in A–1(c) of this section, any amount converted is treated as a distribution from a traditional IRA and a rollover contribution to a Roth IRA and not as a trustee-to-trustee transfer for purposes of section 408 and section 408A. Thus, in a year for which a minimum distribution is required (including the calendar year in which the individual attains age 70 1/2, an individual may not convert the assets of an IRA (or any portion of those assets) to a Roth IRA to the extent that the required minimum distribution for the traditional IRA for the year has not been distributed.
(c) If a required minimum distribution is contributed to a Roth IRA, it is treated as having been distributed, subject to the normal rules under section 408(d)(1) and (2), and then contributed as a regular contribution to a Roth IRA. The amount of the required minimum distribution is not a conversion contribution.
>>>>>>>>>>>>>>>>>>>>>>>>>
Permalink Submitted by Al Fry on Tue, 2010-12-28 16:02
Alan – perhaps he was talking about an annual contribution, assuming his income level would allow it. Back from hiatus, Al
Permalink Submitted by Alan Spross on Tue, 2010-12-28 16:14
Hi Al,
Good to have you back.
I considered that perhaps the guy meant funding a regular Roth contribution providing there was earned income. At best the choice of words would be misleading to most seniors, some of whom have RMDs well in excess of $6k.