Roth Conversions and Required Minimum Distributions: Today's Slott Report Mailbag
By Andy Ives, CFP®, AIF®
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Hello Mr. Slott,
I have been doing Roth conversions this year from two small accounts (one a rollover IRA, the other a SEP-IRA) to consolidate into fewer accounts. The small SEP-IRA has been drained this year (2022) by converting the balance to my Roth. The rollover IRA was reduced by one third this year, and the rest should be converted to the Roth in early 2023.
My question comes from the fact that I will turn 72 in July of 2023, so I must begin RMDs in 2023 based on December 2022 balances. If I finish draining/converting the rollover IRA in early 2023, will my RMDs be based on the December 31, 2022 balance? If I convert the balance in early 2023, will I still have an RMD? It seems unfair to be forced to take RMDs from an empty account based on the balance the previous year. But I can't find anything that says otherwise.
Thanks in advance for any help you can provide,
If you have a balance in the traditional IRA account on December 31, 2022, then you will have an RMD based on that value in 2023. RMDs cannot be converted, so you must take the 2023 RMD before you continue with your conversion schedule next year. Even if you want to pay taxes on everything and convert the entire remaining balance, you must take the RMD first. That RMD cannot be rolled over or, as mentioned, converted. The only way to avoid a 2023 RMD on those dollars is to convert everything before the end of 2022.
Can the sum of RMDs from more than one IRA (traditional, rollover and inherited) be taken 100% from an inherited IRA? For example, with a $10,000 RMD for a traditional IRA, a $5,000 RMD for a rollover IRA, and a $1,000 RMD for an inherited IRA, can the $16,000 sum of RMDs be taken 100% from the inherited IRA only and satisfy the RMD requirements for all three IRAs?
Sorry, but no. There are rules governing the aggregation of IRA RMDs. Some accounts can be aggregated for RMD purposes, some cannot. In your scenario, the traditional IRA and the “rollover IRA” are essentially the same thing. Both are just traditional IRAs. The RMDs for those two accounts can be aggregated and taken from one of the two traditional IRAs. The inherited IRA is a different type of IRA that cannot be aggregated with your traditional IRAs. The RMD from the inherited IRA can only be taken from that inherited IRA.
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