If you don't need your required minimum distributions (RMD) from your traditional IRA for living expenses, can it be reinvested in a Roth IRA? Yes, you can, assuming you are eligible for a Roth based on your income.
This is because the money to fund your IRA can come from any pool of cash that you have available. The Internal Revenue Service does require that you have enough taxable compensation to cover your Roth IRA contribution for the year, but the actual source of your contribution need not be directly from your paycheck.
- If you don't need all the money from your IRA's required minimum distributions, you may be able to invest it in a Roth IRA.
- You must have enough earned compensation for the year to cover the Roth contribution.
- You must be eligible for a Roth IRA in the first place, based on the income limits set by the IRS.
If you can afford to pay the taxes, you may want to think about converting your traditional IRA into a Roth IRA. Once the funds are in the Roth IRA, you will no longer be required to take RMDs from them, at all. Of course, you should check with a tax professional to determine whether a conversion would be a good financial move for you, as there are other factors to consider besides the RMD issue.
If you do decide to convert to a Roth IRA, remember to take an RMD from the traditional IRA one last time for the conversion year. That's necessary because the traditional IRA still existed during that year.