I am 72 and she’s 70 so I will start RMD this year.
Since you are saying you will “start RMD this year” - I am presuming that you didn’t take an RMD in 2021? If that’s the case, unless your 72nd birthday was on or after Jan 1, 2022, you will actually need to take 2 RMDs this year - one for 2021, which will need to be taken by April 1, 2022 and one for 2022, which will need to be taken by Dec 31, 2022.
1. The RMD we need to take this year is just based on the balance of MY IRA on Dec31, 2021 and I only need to take RMD from my IRA, i.e even on joined tax return, RMD is just based just on my IRA balance and from my IRA account only. Is it correct that we do not need to do anything on my wife’s IRA ?
Yes, your RMDs are based solely on your IRA account balances. If you need to take an RMD for 2021, that will be based on your IRA account balance as of Dec 31, 2020. The RMD for 2022 will be based on your IRA account balance as of Dec 31, 2021. In the year that your wife turns 72, you will need to start taking RMDs from her IRA, based on her IRA balances. And those RMDs will need to be taken out before any conversions from her IRA are taken out.
2. To cover our living expenses, we use the money from our Social Security and from withdrawals from my IRA, we have not touched my wife IRA.
Okay, I’m confused - were you planning on taking the RMD in addition to the withdrawals? Because those withdrawals count toward your RMD requirement. If you turned 72 in 2021, to figure out if you actually took out your 2021 RMD already, you need to take your IRA account balance as of 12/31/20 and divide it by 25.6 (from Appendix B Table III in IRS Pub 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf ) and then subtract the withdrawals that you took in 2021 from that amount. If you didn’t take at least the RMD amount, you will have to take any difference out by April 1, 2022. Once you take that difference out, any additional withdrawals in 2022 will count toward your 2022 RMD.
We start to convert my wife IRA to Roth IRA (gradually). I think if we file tax as “married filling separately”, we can save on tax since we can control the RothIRA conversion amount each year so that we can keep her tax at a low bracket.
I believe it is OK legally to do this but just want to confirm. Any down sides of doing our IRA conversion this way ?
Have you actually run the numbers? MFS brackets are exactly half of what MFJ brackets are. So for her to stay in a lower bracket than she would be MFJ, you will end up being pushed into a higher bracket than you would have been if you were filing joint (not ‘joined’). Also, keep in mind that both of you must either claim the standard deduction, or both of you must itemize - you are not allowed to put all of the itemized deductions on one spouse’s return, while the other spouse claims the standard deduction. So if that was your plan to keep her in a low bracket, it won’t work.
I will also ask, as far as the conversions - does she already have a Roth IRA account that’s open and funded? Because if she doesn’t, even though she is over 59 1/2, she will have to wait until the account has been open for 5 years before she can remove money from the account without being subject to taxes and penalties. So, at this point, if she doesn’t already have a Roth IRA, it’s probably a little late to implement this strategy. I would instead suggest that any money that you need for living expenses over and above SS and your RMD, you should consider taking out of her IRA.