I will need to start RMD withdraw this year.
I also have been converting my IRA to Roth IRA gradually each year.
Questions are:
Does the portion I convert from IRA to Roth count toward RMD ? i.e This year if my RMD is $20000 and I do a $15000 conversion from my IRA to Roth, do I need to take $5000 RMD or $20000 RMD ?
Do I calculate the RMD based on my IRA account only or the sum of my (IRA+RothIRA} ?
Thanks
Does the portion I convert from IRA to Roth count toward RMD ?
No! The IRS says that you must take out your RMD before you do any Roth conversions.
Actually, they define that the first money you take out is RMD money. Therefore if you put it into a Roth it is an invalid Roth contribution and you will face penalties.
2. Do I calculate the RMD based on my IRA account only
The total of all and only your taxable IRA accounts, if you have more than one. Roths are not considered in computing the RMD.
Thanks for the info
A follow up question: I have a 401K with some after tax money in it.
Since I have to “withdraw RMD first”, this means I cannot convert this
“after tax” money to a Roth IRA (was hoping I can convert without paying tax
but looks like that’s not possible)?
I will need to start RMD withdraw this year.
Just to check, that means that you will turn 72 (not 70 1/2) this year? I will point out that you do have the option of waiting until April 1 of the year after you turn 72 to take your first RMD. However, you will then have to take 2 RMDs in that year, so it may not be beneficial to wait.
1. Does the portion I convert from IRA to Roth count toward RMD ?
No.
i.e This year if my RMD is $20000 and I do a $15000 conversion from my IRA to Roth, do I need to take $5000 RMD or $20000 RMD ?
You need to take a $20k RMD first. After you take the RMD, you can do whatever conversion you want to do.
2. Do I calculate the RMD based on my IRA account only or the sum of my (IRA+RothIRA} ?
RMDs are based on the balance of your Traditional IRA account(s) as of Dec 31 of the previous year (so Dec 31, 2021 for your 2022 RMD). If you have more than one IRA account, you can take your RMD out of any/all of the RMD accounts as long as the total withdrawn is at least the RMD amount. (Note - some administrators get concerned about you not taking the RMD amount out of the account they administer if you’re over the RMD age, so you might have to let them know that you are taking it from other accounts.)
AJ
I have a 401K with some after tax money in it.
Since I have to “withdraw RMD first”, this means I cannot convert this
“after tax” money to a Roth IRA (was hoping I can convert without paying tax
but looks like that’s not possible)?
From a 401(k), you actually can convert the after-tax money without paying taxes on it. Presuming your after-tax money has been in the 401(k) for a while, so there are also earnings that have been generated by the after-tax contributions, probably the best way to do so without generating any taxes is to roll the after-tax contributions into a Roth IRA and, at the same time, roll the earnings that have been generated by the after-tax contributions into a Traditional IRA. I would suggest completing this sooner rather than later, in case pending legislation takes away your ability to do so. (It probably would have been better if you had done this in 2021 to be completely safe.)
If you have little or no earnings that have been generated by the after-tax contributions, and your employer allows it, then you can do an in-plan conversion of the after-tax account. All of the money will be moved to the Roth sub-account of your 401(k), and you will owe taxes on the earnings that were converted. That’s why it’s best to do any in-plan conversions as soon as possible after the contributions are made, to avoid having to pay taxes on the earnings.
I will also point out that if you are turning 72 this year, you also will have to take RMDs from your 401(k) account - both the Roth 401(k) and the Traditional 401(k), unless you are still working for the company, and the company allows employees to waive their RMDs.
AJ
was hoping I can convert without paying tax
but looks like that’s not possible?
Correct.
You and everybody else.
Reminds me of when we were buying our first house. I told our real-estate agent that we were looking for a cheap good house that just needed a little bit of fixing up. He laughed and said “Everybody is looking for that.”
There is no way of finagling to get your money out of a pre-IRA without it being subject to income tax. Expect for something like a QCD, which has an explicit law that exempts it from tax.
I have a 401K with some after tax money in it.
Since I have to “withdraw RMD first”, this means I cannot convert this
“after tax” money to a Roth IRA (was hoping I can convert without paying tax
but looks like that’s not possible)?
Correct.
You and everybody else.
I added the part you apparently missed from the original post. Because of the money is in a 401(k), not an IRA, you’re not correct in this case. It is possible to roll the after-tax 401(k) money to a Roth IRA, and at the same time, roll the earnings that the after-tax money has generated into a Traditional IRA without paying any taxes on it. This will change if the pending legislation that eliminates that ability to do conversions of after-tax money is passed.
There is no way of finagling to get your money out of a pre-IRA without it being subject to income tax. Expect for something like a QCD, which has an explicit law that exempts it from tax.
But this is after-tax money in a 401(k), not in an IRA.
AJ
<<I have a 401K with some after tax money in it.>>
You don’t say whether your after-tax money is in a Roth 401k or in a Trad 401k. Either way, you are subject to RMDs in both flavors of 401k.
Remember, Roth IRAs do not have RMDs, but Roth 401ks DO have RMDs.
Trad IRA & Trad 401k BOTH have RMDs.
Here’s an article on 401k rollovers-
https://www.fidelity.com/viewpoints/retirement/IRS-401k-roll…
As another poster pointed out, life would be simpler if you had done the rollovers from your 401k in 2021. This is because your 2022 RMD is based on 31 DEC 2021 account balances & a 2021 rollover would have given you one number to use (assuming you have 1 IRA account, otherwise you have to add all IRA balances together).
Instead, after you do a 2022 rollover that splits your 401k into TIRA & Roth IRA, you will need to calculate the sum of your 31 DEC 2021 TIRA balance & the 31 DEC 2021 pre-tax money in your 401k to find your 2022 RMD.
Note- if in doubt about your math, take out a little extra for insurance- 50% penalty is steep.
Your after-tax money will be safe from RMDs in your new Roth IRA.
Needless to say, check with your tax/financial guy to make sure that some random dog on the internet isn’t steering you wrong.