INITIAL RMD

Submitted by JOSEPH KUTINA on Thu, 2019-12-05 08:22

WIFE TURNING 70 IN DECEMBER 2019. WHEN DOES SHE HAVE TO START TAKING HER RMD. ALSO CONSIDERING CONVERTING FROM TRADITIONAL IRA TO ROTH BEFOR END OF THE YEAR? WHAT ARE YOUR THOUGHTS?



Submitted by Alan - IRA critic on Thu, 2019-12-05 16:42

  • The effect of the conversion must be analyzed. Generally, these are beneficial if the tax rate paid on the conversion is lower than or in some cases equal to the expected tax rates in future years without the conversion. RMDs will be reduced by the % of the IRA that is converted. As for the tax rate paid on the conversion, it is probably lower this year than in future years if the TIRA is sizeable because in future years she must complete her RMD before converting, so both the RMD and the conversion will be taxable. The remainder of December is the last year she can convert without first taking out the RMD.
  • Her first RMD year is 2020, but she can delay the 2020 RMD to 4/1/2021 if she does not convert in 2020. Conversion in 2020 forces her to take the 2020 RMD first. Most likely even without converting in 2020, she would be better off taking her 2020 RMD in 2020, otherwise she will have to take 2 RMDS in 2021, the 2020 RMD by 4/1 and the 2021 RMD by 12/31.

Submitted by JOSEPH KUTINA on Sun, 2019-12-15 04:38

THANKS SO MUCH FOR YOUR EXPERIENCED REPLY.  I’M LEANING TO CONVERT BEFOR THE END OF 2019 AND PAY THE TAXES.  THIS WOULD REDUCE HER 2020 RMD BY A LITTLE BIT AND THEN LET IT GROW TAX FREE FOR AT LEAST 6-8 YEARS.CAN YOU CONFIRM THE IRS 2019 TAX RATES FOR A MARRIED COUPLE FILING JOINTLY.  FOR A COUPLE WITH AN INCOME OVER $19,400 THEIR TAX RATE IS 12%,  AND WITH AN INCOME OVER $78,950 THEIR TAX RATE IS 22% ?  I BELIEVE OURS IS VERY CLOSE TO THE $78,950..THANKS AGAIN FOR YOUR ORIGINAL REPLY AND THIS GREAT WEB SITE.    JOE 

Submitted by Alan - IRA critic on Sun, 2019-12-15 16:25

Yes, those figures are correct. They are taxable incomes, after your itemized or standard deduction is subtracted from your adjusted gross income. Note that if either of you are receiving SS benefits, the conversion may result in more of those benefits being included in your AGI. The end result of that is the effective tax on the conversion could be as high as 40.7%. You should use a tax program and enter various conversion amounts into it, then compare the taxes due with and without the conversion. The difference divided by the conversion amount is the actual tax rate due as a result of the conversion.

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