Age 72 RMD / Roth conversion timing
I will turn 72 this year and, thanks to the delay of Secure 2.0, will be confronted with RMD/MRD.
I can postpone the first one and double up in 2023, realizing that year-end balances from 2021 & 2022 will dictate the amounts. I prefer to capitalize on the current market depression by means of Roth Conversions in lieu of RMD this year. I recognize that RMD from an account must precede conversions from that account. My plan is to stay just under a projected IRMAA threshold and would rather maximize conversions as opposed to taking RMD in 2022.
At the end of 2021 I had two Rollover IRA accounts and a 401k. The considerably larger IRA and the 401k have sizeable cash positions which I would like to move to Roth IRAs to invest at depressed prices.
I believe that, while I cannot convert prior to taking the RMD from any given account, I may transfer funds from one retirement account to another before taking any RMD. Is that correct?
Am I able to take RMD (and perform subsequent Roth conversions) from one of my accounts in 2022 while postponing RMD from other accounts to 2023?
Thank you
Permalink Submitted by Dan Zaehring on Tue, 2022-03-08 19:58
While your 401(k) has a separate RMD calculation which must be satisfied from that account, your IRAs, assuming of the same type, are aggregated for determining the total RMD. That total can be taken for any of your IRAs and must be completed before any conversions from them.
Permalink Submitted by Alan - IRA critic on Tue, 2022-03-08 23:25
IRS Regs permit the rollover of a distribution from an IRA after the RMD “for that IRA” has been completed for the year. Total RMDs can still be satisfied using the IRA RMD aggregation rules, but a rollover from an IRA account after the RMD for that account has been completed is allowed, and that rollover (conversion) is not treated as an RMD for another IRA unless the rollover is not completed.
A strategy to convert the balance from a small balance IRA after the small RMD for that account has been completed is typically executed by doing a direct transfer before the end of the prior year to create IRA balances ideal for the strategy of converting early in the year and completing the larger account RMD later in the year. Non reportable transfers done anytime in the year will not affect the RMD amount for each account.
Permalink Submitted by Dan Zaehring on Wed, 2022-03-09 18:36
I wonder how aggressive is that interpretation of RMD “for that IRA”? If each similar IRA account is treated separately for distributing its RMD, then there is a clear reason for maintaining multiple IRA accounts for anyone planning on conversions. Lastly, why would the IRA have to have a balance at previous year end –why not transfer funds in the current year, thus eliminating “its” RMD completely before making the conversion. I do wonder how much ambiguity is in the rules.
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-09 19:21
Following is the actual IRS Reg 1.408-8, QA 4. It is clear that the Reg recognizes that a taxpayer may own multiple IRA accounts, and the Reg refers to “that IRA” that distributes the RMD as well as other IRA accounts that could satisfy the RMD under the aggregation rules, but are not required to have done so before a rollover can be done from the IRA that has satified it’s RMD. Am not aware of any IRS challenges to this interpretation.
” 1.408-8, Q-4. What portion of a distribution from an IRA is not eligible for rollover because the amount is a required minimum distribution?A-4. The portion of a distribution that is a required minimum distribution from an IRA and thus not eligible for rollover is determined in the same manner as provided in A-7 of § 1.402(c)-2 for distributions from qualified plans. For example, if a minimum distribution is required under section 401(a)(9) for a calendar year, an amount distributed during a calendar year from an IRA is treated as a required minimum distribution under section 401(a)(9) to the extent that the total required minimum distribution for the year under section 401(a)(9) for that IRA has not been satisfied. This requirement may be satisfied by a distribution from the IRA or, as permitted under A-9 of this section, from another IRA.”
Permalink Submitted by Dan Zaehring on Wed, 2022-03-09 20:00
Thank you. It does seem counter-intuitive, but that’s never prevented tax rules.