I'm an 80 year old making increasing required minimum distribution (RMD) tax payments. I plan to convert my IRA to a Roth IRA and pay the taxes for the total RMD. Will I be able to withdraw funds from the Roth the year following the conversion? I understa

By Denise Appleby AAA
A:

First, some background information: the tax treatment of a Roth IRA distribution depends on whether or not the distribution is qualified. Qualified distributions from Roth IRAs are tax and penalty free, but non-qualified distributions may be subjected to tax and an early-distribution penalty. Generally, for a distribution to be qualified, it must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA - this is the five-year rule to which you refer.

In your case, you may withdraw any amount from the principal balance at any time, and the amount will be tax and penalty free. Only the earnings are subject to the five-year holding period because you are at least 59.5 years old.

Note: Please make sure that you distribute your required minimum distribution (RMD) for the year before you convert the amount to the Roth IRA. RMD amounts cannot be converted to a Roth IRA and must be distributed before the conversion. Otherwise, the RMD amount will be considered an ineligible conversion.

To learn more, read Avoiding RMD Pitfalls,'Tis The Season For Required Minimum Distributions, Preparing For The RMD Season - Part 1 and Preparing For The RMD Season - Part 2.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. Does it make sense to convert a Traditional IRA to a Roth when the market’s down?

    If your modified adjusted gross income (MAGI) is $100,000 or less and you are not married filing separately, you may initiate ...
  2. Can I roll a Traditional IRA into a 529 college account for my grandchild?

    A 529 plan, also known as a "qualified tuition program", is an investment vehicle that allows individuals to save for education ...
  3. Can I still set up an SEP if one of my employees refuses to participate?

    You can establish the SEP IRA, even if the employee refuses to participant. However, you would need to establish an IRA for ...
  4. I want to close my IRA account. What percentage will I lose to tax?

    You can move the amount by means of a trustee-to-trustee transfer to another IRA, or roll over the amount to your 401(k). ...
RELATED TERMS
  1. Gold IRA

    Definition of Gold IRA
  2. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  3. Death Master File (DMF)

    Also known as Social Security Death Index. A list of people whose ...
  4. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  5. Peri-Retirement

    A term for the period of time leading up to actual retirement. ...
  6. MyRA

    A new tax-advantaged retirement account that President Barack ...
comments powered by Disqus
Related Articles
  1. I Was Intimidated By Investing, But ...
    Investing Basics

    I Was Intimidated By Investing, But ...

  2. Impact Of Continuing To Work In Retirement ...
    Retirement

    Impact Of Continuing To Work In Retirement ...

  3. Independent 401(K): A Top Retirement ...
    Retirement

    Independent 401(K): A Top Retirement ...

  4. After-Tax Balance Rules For Retirement ...
    Taxes

    After-Tax Balance Rules For Retirement ...

  5. Guide To 401(k) And IRA Rollovers
    Retirement

    Guide To 401(k) And IRA Rollovers

Trading Center