Can RMD money be converted to a Roth IRA?

Why required distributions change Roth conversions

Many retirees convert part of their IRA to a Roth each year. Once your required distributions start, that plan works differently, because the money you are required to take out can never be converted to a Roth.

IRS counts the first dollars you take out of your IRA each year as your required distribution, until you have taken the full amount. So the required amount always comes out first.

How the order works

Here is a hypothetical example. Say this year’s required distribution is $20,000, and you want to convert $50,000.

1. Required distribution out. The first $20,000 has to come out to you as your required distribution.
2. Then convert to Roth. Only after that can the $50,000 go into the Roth.

Both amounts are taxed this year: the $20,000 you took out and the $50,000 you converted. That is $70,000 added to your income on this year’s tax return, not $50,000.

Your first year counts too

The same order applies in your very first year of required distributions, even though you are allowed to wait until April 1 of the next year to take that first one. If you want to convert during that first year, the required amount still has to come out first.

That makes the years before your required distributions start your cleanest window for Roth conversions. After that, the required amount always comes out first, and only what you convert on top of it reaches the Roth.

How we handle it

At Sansone CPA & Financial, we coordinate your tax, investment, and retirement decisions so Roth conversions are planned around the year your required distributions start. That starts with retirement income planning in Crystal Lake, IL built around your tax return.