A:

You can use your required minimum distributions (RMDs) to fund your Roth IRA as a Roth IRA contribution. This is because the source from which you take the cash to fund your IRA can be from any pool of cash that you have. The IRS' requirement is that you have enough taxable compensation to cover the contribution, but the actual deposit of your contribution need not come directly from your paycheck.

If you can afford to pay the taxes, you may want to think about converting your Traditional IRA to your Roth IRA. Once the funds are in the Roth IRA, you will no longer be required to withdraw RMD amounts. Of course, you should check with your tax professional to determine whether a conversion would be a good financial move for you, as there are other factors to consider other than the RMD issue. If you do decide to convert to a Roth IRA, remember to take your RMD for the year you convert before the conversion.

To learn more, read Avoiding RMD Pitfalls.

This question was answered by Denise Appleby.

Hot Definitions
  1. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  2. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  3. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  4. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  5. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  6. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
Trading Center