Concern regarding Roth Conversions and Inherited IRA RMDs
I am currently 64 years old, and I inherited my father’s IRA back in 2009. I have been taking RMDs from this Decedent IRA since that time. I am taking 1/12th of the RMD each month to ensure the entire RMD will have been taken by December 31. So, as of today, I have taken 1/4 of the RMD for 2022.
I also have a traditional IRA and a qualified Roth, and I have converted about $30,000 from my TIRA to my Roth in 2022.
I am now concerned that I have converted incorrectly, because I just read that RMDs must be taken before conversions. I am not the owner of the Decedent IRA … I am the beneficiary. So, does this rule apply to an inherited IRA? If it does, what is my recourse?
Thank you.
Permalink Submitted by Alan - IRA critic on Sun, 2022-03-13 18:40
Converting your own IRA is unrelated to your inherited IRA transactions, so your 30k conversion is no problem. You will just owe taxes on both your conversion and your inherited IRA RMD. Since the RMD tables were revised for 2022, your inherited IRA divisor should have been “reset” to reflect the new single life table, and this would result in a small reduction of your 2022 inherited IRA RMD. I would also suggest that if you are taking monthly distributions from the inherited IRA, that you set them up between the 6th and the 20th of the month of avoid any year end processing delays that might result in missing the last distribution. Finally, you are probably aware that you cannot convert the inherited TIRA to an inherited Roth IRA even if you wanted to.
Permalink Submitted by David Freeman on Sun, 2022-03-13 19:16
Thanks Alan. Your response will help me sleep well tonight. I’m currently doing everything you suggest in your response. It was the RMD that had me quite concerned. And I do know that I cannot convert the Decedent IRA to a Roth. As a follow up, what logic is there, if any, to requiring that an RMD be completed prior to a Roth conversion? Why wouldn’t the IRS simply be satisified that the RMD was completed by the last day of the calendar year? And how would the IRS even know?
Permalink Submitted by Alan - IRA critic on Sun, 2022-03-13 22:24
According to the tax code, the first distribution in an RMD is treated as applying to the RMD, and an RMD is never eligible to be rolled over. Since a conversion is completed by a rollover to Roth, the RMD for the particular IRA account must be completed first. Some custodians warn about this, but many are unaware. Since the IRS does not normally receive distribution dates (just the year), they don’t know about most such infractions barring an audit of the taxpayer. An employer plan has much more control regarding this rule.