IRA - RMD Quandry ?

[74-911]

As we are not required to do a RMD this year, is anyone else considering rolling money from their traditional IRA to their Roth IRA? Will have to take the tax hit but will eventually have to anyway and who knows what tax rates will be in the future - definitely will not be lower however.

Ideally would have done this in the spring/summer when the market was way down but ain't hindsight wonderful? Kind of the last thing on my mind at the moment.

Ideally would also pay the taxes due from other funds rather than withholding from the IRA withdrawal but wouldn't this cause issues with under withholding if you wait until the January quarterly deposit to pay the taxes due ?

Comments anyone ??

[Bill Verburg]

Originally Posted by 74-911

As we are not required to do a RMD this year, is anyone else considering rolling money from their traditional IRA to their Roth IRA? Will have to take the tax hit but will eventually have to anyway and who knows what tax rates will be in the future - definitely will not be lower however.

Ideally would have done this in the spring/summer when the market was way down but ain't hindsight wonderful? Kind of the last thing on my mind at the moment.

Ideally would also pay the taxes due from other funds rather than withholding from the IRA withdrawal but wouldn't this cause issues with under withholding if you wait until the January quarterly deposit to pay the taxes due ?

Comments anyone ??

RMD was extended for 2yrs, It used to be the year you turned 70 1/2, now if your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72

When you do a RMD you do not have to sell a stock or mutual fund, you can do a transfer in kind, for example if you have 100 shares of say Amazon in an IRA, you can transfer those shares to your regular brokerage account, as part or all of the RMD as long as the net $ amount satisfies the regs.

[74-911]

Originally Posted by Bill Verburg

RMD was extended for 2yrs, It used to be the year you turned 70 1/2, now if your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72

When you do a RMD you do not have to sell a stock or mutual fund, you can do a transfer in kind, for example if you have 100 shares of say Amazon in an IRA, you can transfer those shares to your regular brokerage account, as part or all of the RMD as long as the net $ amount satisfies the regs.

Bill, I wasn't very clear in my OP. I (and my wife) have been making RMDs for several years and understand how they work. One rule is, you cannot take the $$$ from RMD and put them in a Roth IRA.... big no no. However (as you probably know) RMDs are not required this year only.

From everything I read, this year I can convert $$ from my traditional IRA to my Roth IRA as the $$ are not an RMD, I just have to take the usual tax hit. Ideally the full amount of the withdrawal would go the Roth and I would pay the taxes due from other funds.

My question is really how to handle the taxes due if I decided to say convert $30K from my traditional IRA to my Roth IRA. I could have all the taxes withheld during the withdrawal (easiest but least desirable way) or could I have a minimal amount withheld and cover the rest of the taxes due via the final quarterly deposit in January without getting into under withholding issues ??

I was just wondering if anyone else was considering this ???

[Bill Verburg]

Originally Posted by 74-911

Bill, I wasn't very clear in my OP. I (and my wife) have been making RMDs for several years and understand how they work. One rule is, you cannot take the $$$ from RMD and put them in a Roth IRA.... big no no. However (as you probably know) RMDs are not required this year only.

From everything I read, this year I can convert $$ from my traditional IRA to my Roth IRA as the $$ are not an RMD, I just have to take the usual tax hit. Ideally the full amount of the withdrawal would go the Roth and I would pay the taxes due from other funds.

My question is really how to handle the taxes due if I decided to say convert $30K from my traditional IRA to my Roth IRA. I could have all the taxes withheld during the withdrawal (easiest but least desirable way) or could I have a minimal amount withheld and cover the rest of the taxes due via the final quarterly deposit in January without getting into under withholding issues ??

I was just wondering if anyone else was considering this ???

As I understand it everyone is exempt from RMD for 2020, it was part of the spring Covid relief bill

As to the IRA to Roth rollover anyone can do it any year, it's just a taxable event and can not be used as part of the RMD

I've been doing a small IRA to Roth rollover for several years now, just try to keep from going up a tax bracket, but you are right that taxes will probably never be lower than right now

[74-911]

Originally Posted by Bill Verburg

......

I've been doing a small IRA to Roth rollover for several years now, just try to keep from going up a tax bracket, but you are right that taxes will probably never be lower than right now

I did the IRA to Roth conversions from when the IRS allowed the backdoor conversions in 2010/2011? until I had to do RMDs...

Just trying to figure out if it is worth it to do one last conversion ?? no easy answer.

again, thanks for the response.

[Bill Verburg]

Originally Posted by 74-911

I did the IRA to Roth conversions from when the IRS allowed the backdoor conversions in 2010/2011? until I had to do RMDs...

Just trying to figure out if it is worth it to do one last conversion ?? no easy answer.

again, thanks for the response.

The only real consideration is the tax consequences, As I said anyone can rollover $ from an IRA to a Roth at any time, you pay taxes on the amount rolled over as regular income, just like w/ the RMD, the benefit is that there is no tax on future growth of that amount.

every dime taxed this year would likely to be taxed at a higher rate in any future year