Roth Conversion in Years w/ RMD
Client is of RMD age and wants to do Roth conversions. Does the client have to satisfy the RMD prior to the conversion? If so, is there a workaround or tip to do this differently? We generally try to take RMDs toward the end of the year and client wants to convert now.
Permalink Submitted by Alan - IRA critic on Fri, 2021-06-25 22:39
The IRS Regs require that the RMD for the IRA account funding the conversion to be completed before the conversion, but does not require the RMD for other TIRAs to be completed. Therefore, the only work around requires that the client have more than one TIRA account when the year began. If client only has one at this time, there is no solution, but for 2022 the client could partition the TIRA before year end to create two accounts, one large enough to fund the conversion and the RMD for that account. The other TIRA account will have have a conversion done, so the RMD for the other account can wait until year end. Care must be taken when partitioning the account to select the correct amount for the new IRA account so that the RMD and the conversion for the first account will almost drain that account.
As you can see, this is a hassle, and errors could occur executing this process. It probably makes more sense for the client to avoid this and arrive at a date in 2021 to take the total RMD and then convert an additional amount after the RMD is distributed. Client would have to determine what is more important, doing the conversion now or completing the RMD later. Doing both in Sept would be an average between now and December.