Why must RMD be completed before doing ROTH conversion

Forum|Forum|1 year ago
March 13, 2025
2 replies
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Can IRA to ROTH conversion be done before completing RMD withdrawal

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Best answer by dmertz

Expert Reviewed

The tax code says that in a year for which you are required to take an RMD, the first amounts distributed are RMD. Because an Roth conversion is a special type of distribution and rollover, and an RMD is not eligible for rollover, the RMD must be satisfied before doing any conversion.

If you to the Roth conversion first, an amount that is ineligible for conversion (because it is RMD despite your desire for it not to be) is deposited into the Roth IRA and becomes an ordinary Roth IRA contribution, not a conversion. If that ordinary Roth IRA contribution exceeds the maximum that you are permitted to contribute for the year, you have an excess contribution to the Roth IRA.

Even if you were permitted to do a Roth conversion before taking the RMD, the only case I can think of where if might be beneficial to do that is if the year is the first year for which you are required to take an RMD and you wanted to delay the RMD income to the following year by taking that distribution in that following year by April 1.

O

Opus 17

Level 15

"Can IRA to ROTH conversion be done before completing RMD withdrawal"

No, because that's the law. The intent of IRAs is to create money to use in retirement, not to create tax-free money to pass on to your heirs. That's why there is an RMD requirement in the first place, you must withdraw at least some money and pay tax on it, based on your remaining life expectancy. For the same reason, you must withdraw your RMD first so you can pay tax on it, before you can convert any of the pre-tax IRA to a Roth IRA.

U

user17582967402

Level 2

re statement above : "...For the same reason, you must withdraw your RMD first so you can pay tax on it, before you can convert any of the pre-tax IRA to a Roth IRA. .."

Do not understand.

If I do Roth conversion on Monday and then RMD on Friday, there is ZERO tax difference than if I did RMD on Monday and then Roth on Friday.

Right?

O

Opus 17

Level 15

@user17582967402 wrote:

re statement above : "...For the same reason, you must withdraw your RMD first so you can pay tax on it, before you can convert any of the pre-tax IRA to a Roth IRA. .."

Do not understand.

If I do Roth conversion on Monday and then RMD on Friday, there is ZERO tax difference than if I did RMD on Monday and then Roth on Friday.

Right?

No. It is technically incorrect, as explained by @dmertz . By operation of law, taking money out of the IRA on Monday is automatically the RMD, and thus not eligible for rollover (assuming you have not withdrawn any other funds earlier in the year).

You might not get caught, but it is technically incorrect, and if there is an audit, you can be assessed whatever penalties and taxes apply.

D

dmertzAnswer

Level 15

Expert Reviewed

The tax code says that in a year for which you are required to take an RMD, the first amounts distributed are RMD. Because an Roth conversion is a special type of distribution and rollover, and an RMD is not eligible for rollover, the RMD must be satisfied before doing any conversion.

If you to the Roth conversion first, an amount that is ineligible for conversion (because it is RMD despite your desire for it not to be) is deposited into the Roth IRA and becomes an ordinary Roth IRA contribution, not a conversion. If that ordinary Roth IRA contribution exceeds the maximum that you are permitted to contribute for the year, you have an excess contribution to the Roth IRA.

Even if you were permitted to do a Roth conversion before taking the RMD, the only case I can think of where if might be beneficial to do that is if the year is the first year for which you are required to take an RMD and you wanted to delay the RMD income to the following year by taking that distribution in that following year by April 1.

J

jestefan

Level 2

Can you please cite the IRS publication or better yet U.S. Code that states this? I cannot find either. Thank you.

DaveF1006

Level 15

A Roth conversion is legally defined as a "qualified rollover contribution." Under the tax code, you cannot "roll over" any money that is classified as a Required Minimum Distribution. Here are some references that may pertain to you.

The Citation: 26 U.S. Code § 408(d)(3)(E)
What it says: "Denial of rollover treatment for required distributions." It explicitly states that the rollover rules do not apply to any amount required to be distributed under section 401(a)(9) (the RMD rules).
The Logic: Since a Roth conversion is a rollover, and RMDs cannot be rolled over, an RMD cannot be converted.

2. The Treasury Regulation: The "First Dollars Out" Rule

This is the "gotcha" that forces the timing. The IRS has a regulation stating that if you are of RMD age, the very first money you take out of your IRA in a calendar year is legally deemed to be your RMD until that requirement is satisfied.
The Citation: 26 CFR § 1.408-8, Q&A-4 (specifically paragraph (a))
What it says: "The first dollars distributed during that year are treated as consisting of the required minimum distribution until an amount equal to the [RMD]... has been distributed."
The Logic: You cannot "skip over" the RMD to convert other funds first. Any attempt to convert money before taking your RMD results in the IRS viewing that "conversion" as actually being your RMD.

3. IRS Publication 590-A

For a plain-English explanation, the IRS clarifies this in their annual guide for taxpayers.

The Citation: IRS Publication 590-A, under the section "Can you move retirement plan assets?" and the sub-header "Required distributions."
What it says: "You cannot make a tax-free rollover of a required minimum distribution... Any amount converted to a Roth IRA is treated as a distribution from your traditional IRA and a rollover to the Roth IRA."

@jestefan

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