Can You Convert Your RMD into A Roth IRA?

Can You Convert Your RMD into A Roth IRA? In this video, Bob Powell is joined by Sarah Brenner, director of retirement education at Ed Slott and Co., who answers the question: Can You Convert Your RMD into A Roth IRA?

Article: Can You Convert Your RMD into A Roth IRA?

Yes, it is possible to convert your Required Minimum Distribution (RMD) to a Roth IRA, but it’s important to understand the implications and requirements associated with such a conversion.

Here’s how it generally works:

1. RMDs: Once you reach a certain age, typically 72 years old for most retirement account owners (70½ for those born before July 1, 1949), the IRS requires you to start taking distributions from your traditional IRA, 401(k), or other qualified retirement plans. These required distributions are known as RMDs and are subject to income tax.
2. Converting RMD to Roth IRA: If you do not need the money from your RMD for living expenses and would like to continue growing your retirement savings tax-free, you have the option to convert your RMD amount to a Roth IRA.
3. Tax Implications: When you convert your RMD to a Roth IRA, the converted amount is treated as taxable income in the year of the conversion. This means that you will owe income tax on the converted amount based on your current tax bracket. However, once the funds are in the Roth IRA, they can grow tax-free, and qualified withdrawals in retirement are also tax-free.
4. No RMDs for Roth IRAs: Roth IRAs are not subject to RMD rules during the account owner’s lifetime. This means that once you convert your RMD to a Roth IRA, you are not required to take distributions from the Roth IRA, allowing the funds to continue growing tax-free for as long as you wish.
5. Five-Year Rule: If you are converting RMD amounts that have been in a traditional IRA for less than five years, you may be subject to the Roth IRA five-year rule for qualified distributions of earnings. This rule requires that converted amounts must be held in the Roth IRA for at least five years before they can be withdrawn tax-free. However, contributions to a Roth IRA can be withdrawn tax-free at any time.
6. Consultation: Converting RMDs to a Roth IRA can have significant tax implications, so it’s important to consult with a tax advisor or financial planner to assess your individual situation, understand the tax consequences, and determine if a conversion makes sense for your retirement and tax planning goals.

Overall, converting RMDs to a Roth IRA can be a strategic way to manage your retirement savings, minimize future tax liabilities, and leave a tax-efficient legacy for your heirs. However, it’s essential to carefully consider the potential tax implications and consult with a financial professional before making any decisions.

Learn more about Sarah Brenner at this link: https://www.finstream.tv/featured/sarah-brenner/