IRA Distribution, RMD and Roth Conversions
If one takes a lump sum IRA distribution(s) during the current year that exceeds (or equals) your previous year’s RMD, can one then use that IRA distribution proceeds to pay the taxes of the Roth Conversion in the current year. For example let’s say my 2024 RMD is calculated at $50,000 and in early of the following year (say Jan or Feb 2025) I take an IRA distribution (and then deposited in my bank account) of at least $50,000 satisfying the 2024 RMD, can I then perform 2025 Roth Conversion right afterwards, using the IRA distribution of $50,000 “to pay” the 2025 federal taxes on that conversion? I assume your answer would also apply if one makes systematic monthly IRA distributions that exceeds the previous year RMD?
I plan to continue with annual IRA Roth Conversions once I am required to take RMDs. My understanding is that one has to first satisfy the previous year’s RMD before a current year Roth Conversion can be initiated, but unsure what I described is allowed or what is the IRS requirement for Roth Conversion once one reaches the RMD age. Always appreciate your help!
Permalink Submitted by Alan - IRA critic on Thu, 2025-04-10 15:50
The prior year RMD amount is irrelevant. You must complete the current year RMD before you can convert additional amounts. You can withhold from the RMD distribution to meet your safe harbor amount.
Your safe harbor amount for withholding is the lesser of 100/110% for higher incomes of your prior year tax liability or 90% of the current year tax liability. Maybe that is why you are considering the prior year, but it’s the prior year tax liability, not the prior year RMD.
Because you will be taxed on both your RMD and the conversion, you probably would want to complete the bulk of your conversions before your first RMD distribution year.
Many people withhold from their RMD distributions as that is often enough to avoid having to pay quarterly estimates. Withholding also avoids timing issues because regardless withholding is treated as being done equally throughout the year, even if the distribution is late in the year.
But you must complete 100% of the current year RMD for all your IRAs before doing any conversions.
Permalink Submitted by Donald Diotallevi on Thu, 2025-04-10 19:18
Sorry Alan, I am missing something with your explanation.
This is what I understand; one’ determines the RMD for each IRA separately based on the “prior” year-end balance and your applicable life expectancy factor from the IRS Uniform Lifetime Table. If for multiple RMD, the RMDs are aggregated for a total RMD withdrawal requirement. You can then withdraw the total RMD amount from one or a combination of your IRAs. Isn’t my current year (2025) RMD withdrawal based on the prior year’s (2024) end of year balance?
Isn’t my sequencing consistent with an Article I read on Ed Slott;s (Your) website; published by a colleague of yours. Andy Ives on November 4, 2024 title “New Rule: All IRA RMDs Must Be Satisfied Prior to Doing a Roth Conversion”. In this article, Andy discusses that aggregating all your RMDs is required to arrive at the total Required Minimum Distribution. The article concludes “Again, sequencing matters. RMDs have always had to be taken before any Roth IRA conversion. The difference now is that ALL of a person’s total aggregated IRA RMDs must be withdrawn prior to a conversion – not just the RMD on the account being converted. Be careful here as this new rule flies in the face of how many RMDs and conversions have been processed in the past.”
I realize Federal tax withheld must be sufficient (or Safe Harbor application) on the Roth Conversion and other Income is due for 2025 Tax Year filing to avoid underpayment penalty. In my example the RMD is based on the prior year 2024, and I am taking the entire RMD withdrawal and bank depositing (or tax withheld and sent to the IRS); prior to initiating a 2025 Roth Conversion process.
Isn’t this sequence consistent with Andy’s Article or am misunderstanding his Article? Can you please provide further explanation what am I missing? Thanks Alan.
Permalink Submitted by Alan - IRA critic on Thu, 2025-04-10 20:06
Andy’s article is correct, as is your first paragraph in the above post.
But your initial post referred to your 2024 RMD of 50000. If your 2024 RMD was 50,000 and your 2025 RMD was 60,000 you must withdraw 60,000 (not 50,000) from any combination of your IRA accounts in 2025 before you can do any conversions. How much you choose to withhold from the 60,000 is just a part of your RMD that you directed to the IRS.
Again, your 2024 RMD does not influence your 2025 RMD other than by reducing your 12/31/2024 balance used to calculate your 2025 RMD. But your first RMD year (probably the year you reach 73) allows for an exception. You can defer all or part of your first year RMD to as late as 4/1 of the following year, and the following year RMD must also be distributed by the end of that year. But if you defer any of your first year RMD that also means that you cannot convert in that year. Therefore, if you are planning to continue conversions into your RMD years, you probably need to plan on taking the full first year RMD in that year and then converting any additional amounts you wish to.