Converting RMD to Roth IRA: What to know

I don’t need the required minimum distribution (RMD) from my traditional IRA to live on, so can I just convert the RMD directly into a Roth IRA?

No. It’s against the rules to convert an RMD into a Roth IRA.

The reason: An RMD and a Roth conversion are two distinct and different financial steps, each of which adds to your taxable income. You can’t reduce their impact on your tax bill by turning them into a single step.

A simple example: Let’s say you have $250,000 in a traditional IRA. Your 2024 RMD is $5,000. You must take that RMD before you can do a Roth conversion. Taking the $5,000 RMD from your traditional IRA adds $5,000 to your 2024 taxable income.

You may then convert as much or as little of the $245,000 balance remaining in the traditional IRA as you wish into a Roth IRA. If you decide to convert $10,000 of the $245,000, that amount will be added to your 2024 taxable income.

The upshot: Your $5,000 RMD and your $10,000 Roth conversion together have added $15,000 to your taxable income for the year.

From a tax standpoint, the best time for Roth conversions is usually between the ages of 65 and 73. That’s when people’s taxable income has fallen, since they’ve stopped working and don’t yet have to take RMDs. But before doing a Roth conversion, it’s always prudent to consult a tax adviser about how it’s likely to affect your tax bill. This is particularly important if you’re a Medicare recipient because you want to avoid doing Roth conversions that might push your taxable income high enough to subject you to Medicare premium surcharges.

The bottom line:

You cannot convert your RMD into a Roth IRA.

More information:

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