Dividing 1st RMDs into different years | Ed Slott and Company, LLC

Dividing 1st RMDs into different years

I will have to start taking my first RMDs from my traditional IRAs and 403(b)s in November 2020. Can I just take RMDs from my traditional IRA and one of my 403(b)s in 2020, and leave the RMDs from my OTHER 403(b)s till April 2021? I understand I will have to take RMDs from those OTHER 403(bs) again for the year 2021. My object is to do a substantial Roth conversion in 2020.

  • Since you reach 70.5 in 2020, you could defer your entire 2020 RMD for all plan to 4/1/2021. However, if you want to CONVERT in 2020, you must complete the RMD for the IRA that you convert before converting. Effectively, the conversion eliminates your option to defer the 2020 RMD for that account to 2021. You can still defer the RMDs for the other accounts (403b or IRA) to 2021 if you wish.
  • You could convert THIS YEAR without affecting RMDs or having any other retirement plan income. Perhaps your other income is too high to justify converting in 2019?
  • If you want to minimize the RMD income in 2020 and still convert, there is a way to do it. Before the end of this year you could do a direct transfer from one of your IRA accounts to the other, leaving a balance in the account you wish to convert equal to the intended conversion plus the RMD for that account. Of course, the RMD is dependent on the value on 12/31/2019 so you will have to figure what that value should be. Come 2020, you would then take the RMD for that one IRA, then convert the rest of that account so that this account will be drained in 2020 by the conversion and the RMD. The reason that this strategy works is that a conversion is a rollover and you cannot roll over an RMD, but you have reduced the RMD for that particular account to a minimum, allowing you to take the small RMD and then convert the rest. You can convert from any account from which the RMD is completed despite the fact that the rest of your RMDs for other accounts have NOT been completed.
  • Not sure why you indicated you HAD to take RMDs in Nov 2020. Perhaps because of your planned conversion being in Nov or Dec? In any event, you can delay any 2020 RMDs until 4/1/2021 for accounts that you DO NOT convert from or take other distributions from.
  • As for the accounts that will have NO conversion or other distribution in 2020, you can not only delay those RMDs, but you can aggregate 403b RMDs with other 403b accounts, and aggregate IRA RMDs with other IRA accounts, but not 403b RMDs with IRA RMDs. 

The reason I indicated that I will be taking my RMDs in November 2020 is because I plan to do a QCD from my traditional IRA, and the QCD has to wait till I actually am 70½, and no sooner, so whatever balance is left of my IRA RMD after the QCD is taken out of my traditional IRA  will be used to satisfy my total IRA RMD for 2020. Also, the QCD has to be taken before the RMD—if done in the reverse order, the QCD cannot be used to offset the RMD income.If I do an RMD from one of my 403(b)s in 2020, I can do that during any time that same year. Is my thinking correct? 

It is a challenge juggling the one time RBD options along with QCD requirements. Adding a Roth conversion adds to the planning challenges. Yes, you cannot do a QCD until you actually reach 70.5 to the day and the first distribution in 2020 from any of these accounts is deemed to apply to your RMD. The QCD will be non taxable so you could do a QCD from the same IRA account that funds the conversion just after reaching 70.5 and prior to the conversion. Any further planning would require determining the amount of your RMDs for 2020 for each account, the amount you want to convert, and the amount of your QCD before planning the total strategy for both 2020 and 2021. The only thing you would have to do this year if you wanted to control the amount of the RMD for one of your IRAs is to complete the transfer between IRAs to generate the year end balance you wish. 

 

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