Another RMD Conundrum: How Can I Liquidate My IRA With RMDs Approaching?

By Jeffrey Levine and Sarah Brenner
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This week’s Slott Report Mailbag answers a consumer’s question on how to handle taxes with charitable gifts and walks a husband through the complicated process of moving IRA funds to a Roth IRA while facing required minimum distributions (RMDs).  As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one at this link.

1.

If appreciated employer stock is removed from a 401(k) as part of a lump sum distribution and placed in a taxable account, and if the stock is later donated to a charity, do capital gains taxes need to be paid on the stock’s NUA at the time of donation? If there is tax, is it the donor’s or the charity’s responsibility to pay the tax? Additionally, if the stock being donated appreciated while in the taxable account, is there capital gains tax on the appreciation?

Answer:
If shares of stock were gifted to a charity as described above, there would be no income tax owed on the capital gains at the time of donation. Furthermore, the owner would receive a charitable deduction for the fair market value of the transferred stock, subject to the regular charitable contribution limits.

2.

I have a rather specific question, saw your website and thought I’d try. 

My wife will turn age 70 next year. She’s been doing annual Roth conversions. It looks like about $160,000 remaining in the IRA next year. I know she can delay the first RMD and take two the second year. My question is – if you do a total Roth conversion to liquidate the IRA account in your first year, will you still owe taxes the following year on the missed RMD? Or, is the custodian actually going to prevent a liquidation?

Since her birthday is July, age 70 ½ is actually 2018. So I’m trying to determine the best method to liquidate her IRA. Her IRA is small and we’d just like to simplify down to just my IRA. She can certainly do 100% conversion next year, before age 70 ½. But can she do 50% next year and liquidate the remaining 50% the following year (70 ½) without taking an RMD? It doesn’t save any tax liability but gets more in the Roth. Thoughts?

Answer:
No. Prior to the year in which your wife turns 70 ½, she may convert as much or as little of her IRA to a Roth IRA as she desires. However, once she reaches the year in which she turns 70 ½, she must FIRST take any RMD she has for the year before converting any or all of her remaining IRA balance to a Roth IRA.