Should I convert the money in my traditional IRA account into a Roth IRA account to keep required minimum distributions (RMDs) low?

I'm 67 years old and retired, but I'm not collecting Social Security until I'm 70 years old. I'm collecting a pension and a spousal benefit from my ex-wife that I started at 66, so my income is low during the next few years. I'm staying under the $85,0000 limit to keep my Medicare costs from rising. Should I move the money in my traditional IRA accounts into a Roth IRA account so that I can keep my required minimum distributions (RMDs) low?

Financial Planning, Retirement, Pensions, Social Security, IRAs
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3 weeks ago
89% of people found this answer helpful

Moving, or converting, your tax deferred traditional IRA funds into a Roth IRA can give you many advantages in addition to eliminating your RMDs. Converting your traditional IRA  (or at least a portion of these funds depending on what taxes could easily be paid on those dollars the year of conversion or over a series of years) into a Roth IRA is a simple solution. By converting your traditional IRA into a Roth IRA you will:

  1. Reduce your tax rate risk: The risk that taxes in the future could be higher than they are today. Once it is converted, any withdrawals from the Roth account after five years and achieving the age of 59.5 will be tax-free. 
  2. Eliminate your Required Minimum Distribution (RMD): Once you turn 70.5 years of age the government requires you to take these funds out of your traditional IRA every year. If you forget or choose not to take these funds out of your traditional IRA, there is a 50% penalty. Whereas, with a Roth IRA there is no RMD.
  3. When withdrawing funds from your traditional IRA, the income counts as provisional income, whereas when withdrawing funds from your Roth IRA, the distributions have no Social Security tax. Roth IRA distributions do not count against income thresholds that may cause Social Security benefits to be taxed.
  4. Your heirs will receive your Roth funds tax-free. 
  5. Roth IRA conversions may be re-characterized if your financial situation changes that year. Please note that as of 2018 with Trump's new tax law changes, all Roth IRA conversions done in 2018 and going forward may not be re-characterized back to your traditional IRA.

Converting from a traditional IRA to a Roth could be a useful tool. By paying taxes today you can take advantage of your current low income tax rate. 

Read more: Tax Savings with a Roth IRA and Real Estate.)

Read more: Income Taxes and Your Retirement Accounts | Investopedia 

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