Why must RMD be completed before doing ROTH conversion

[Linfyamatt]

Can IRA to ROTH conversion be done before completing RMD withdrawal

[Opus 17]

"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. 

[dmertz · Accepted solution]

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.

[user17582967402]

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?

[Opus 17]

---

@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.  

[dmertz]

As Opus 17 and I explained, under the tax code there is a taxable difference.  If the purported Roth conversion occurred first, the amount converted up to the amount of the RMD would constitute a failed conversion.  Reporting that portion on your tax return as a completed conversion would mean that you were filing inaccurate tax return (only making it seem like there is no taxable difference).  The RMDs for all of your traditional IRAs must be satisfied before doing Roth conversions of any other amounts from your traditional IRAs.