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starfisht
Level 2

converted from traditional IRA to Roth with no salaried income

I may have made a mistake. This year I have converted about $20K from my traditional IRA to my Roth. My income is from investments and SS, no salaried income. I knew that I couldn’t make a normal contribution to any IRA but I thought that conversion was ok. Am I in trouble?

1 Best answer

Accepted Solutions
dmertz
Level 15

converted from traditional IRA to Roth with no salaried income

An RMD cannot be converted to Roth because an RMD is ineligible for rollover and the tax code defines a Roth conversion as a taxable rollover.  Also, the first distributions from your traditional IRA in 2021 are considered to be the RMD for 2021, so until you have satisfied the RMD for that traditional IRA account, no conversions to Roth from that account are permitted.  The RMD must be satisfied first.

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7 Replies
VolvoGirl
Level 15

converted from traditional IRA to Roth with no salaried income

That's ok.  You can always do a conversion.  You only need earned income to make a new contribution.  The conversion will be taxable.

starfisht
Level 2

converted from traditional IRA to Roth with no salaried income

Thank you so much volvogirl. One more question. In 2021 I need to take the minimum required distribution from the traditional IRA. would like to make another conversion. Does a transfer from the traditional IRA to the Roth satisfy that? If not then do I have to complete the MRD before I can do a conversion?

dmertz
Level 15

converted from traditional IRA to Roth with no salaried income

An RMD cannot be converted to Roth because an RMD is ineligible for rollover and the tax code defines a Roth conversion as a taxable rollover.  Also, the first distributions from your traditional IRA in 2021 are considered to be the RMD for 2021, so until you have satisfied the RMD for that traditional IRA account, no conversions to Roth from that account are permitted.  The RMD must be satisfied first.

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fanfare
Level 15

converted from traditional IRA to Roth with no salaried income

If you failed to take the RMD amount first, just take the RMD.

If the balance in the IRA is too low, you used to be able to recharacterize the Roth Conversion back

into the IRA and then distribute it.

 

I wonder if there is any other solution under the new rules.

dmertz
Level 15

converted from traditional IRA to Roth with no salaried income

An attempted Roth conversion of an RMD is a distribution from the traditional IRA and a failed conversion.  As a failed conversion, it's an excess contribution to the Roth IRA to the extent that it exceeds the amount eligible to be deposited as a regular Roth IRA contribution for the year.  The excess contribution is subject to the normal excess contribution penalties and is corrected by means of a return of contribution before the due date of the tax return for the year in which the failed Roth conversion deposit was made or a regular distribution if done after the due date of that tax return.

 

Recharacterization was never an option to correct a Roth conversion of an RMD since the RMD was a distribution from the traditional IRA not eligible to be returned to the traditional IRA.  The only legal corrective action is the one I described in the preceding paragraph, although I don't doubt that people may have done recharacterizations for this, mistakenly thinking that it was a legitimate corrective action.

Hal_Al
Level 15

converted from traditional IRA to Roth with no salaried income

The coronavirus bill, which passed 3/27/20, includes a measure that waives  RMDs from 401(k) plans, IRAs and other retirement accounts for 2020.

This appears to allow a Roth conversion, even if if the RMD has not been met.  Can anyone confirm this?

Reference:

https://www.forbes.com/sites/ashleaebeling/2020/03/27/congress-suspends-required-minimum-distributio...

 

 

 

dmertz
Level 15

converted from traditional IRA to Roth with no salaried income

There are no RMDs for 2020, so there is no RMD to meet prior to doing a rollover (including Roth conversion) of any distribution.  People continue refer to the amount that would have been their RMD for 2020 as their 2020 RMD, but it's not a required distribution, so there is no such thing as a 2020 RMD.

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