Hold on — those numbers don’t match up with your given example....planning to take RMDs in a few years and continue ROTH conversions as well. As an example, say I have 1,000,000 in an IRA. My first RMD will be 50,000 and I will do a ROTH for 100,000 as well as do withholding of $20,000 on the ROTH conversion.
Does the RMD for following year take into account the lower balance in my account because of the ROTH conversion? 1000000-100,000 (Roth conversion) - 10000 (withholding). Is that something I should recalculate annually based on the current IRA balance?
I realize that the example is made up, so in one sense, it doesn’t really matter that the numbers don’t match up. But I’m more worried that it indicates that there are a few things you don’t understand about this process that could get you in trouble.
First of all, you should know that your RMD is not eligible for a Roth conversion. If you try to convert the RMD into a Roth, you have now subjected yourself to penalties. So if you want to convert $100,000 from your traditional IRA to your Roth IRA, and you need to take $50,000 out as an RMD, you must take out $50,000 as your RMD first. You cannot convert that money. In order to do the Roth conversion, you have to take an additional $100,000 out and convert that. In this example, $150,000 leaves your traditional IRA.
Also, the withholding from your Roth conversion should accounted for when you put money in your Roth IRA. So, if you want to convert $100,000 from your traditional IRA to your Roth IRA and also withhold $20,000, you actually only get $80,000, and $20,000 goes to the IRA. You then need to add $20,000 of your non-IRA money to the $80,000 to put in $100,000 into your Roth IRA to complete the conversion.
Perhaps you already knew this, and these warnings are redundant. But just in case you didn’t know this, I want to state this so you don’t end up paying penalties unnecessarily.
Statistics: Posted by FullsideCoverman — Tue Mar 11, 2025 3:43 am