RMDs to Fund Roth Conversions
More than Money with Gene Dickison Answers:
“My RMD will be about $10,000 this year. I don’t need this money to pay bills. What should I do with it?”
It depends . . .
. . . on your short and long term goals.
One alternative for a taxpayer who wants to reduce their income tax bills in the future is to use their net (after-tax) RMD proceeds as the funds to pay the income tax bill on a Roth IRA conversion.
Using our question as an example – assuming a 15% tax bracket, this $10,000.00 RMD will net the taxpayer about $8,500.00. The taxpayer wishes to convert a portion of their IRAs to a (non-taxable) Roth IRA and use their RMD to pay the tax.
A conversion of about $56,000.00 will result in a tax of about $8,500.00. Using their RMD to pay this tax creates a new pool (inside a Roth IRA) that will likely escape income taxation for the life of the taxpayer – and maybe far beyond.
And if you like the result – you can do again next year.
Does this idea fit in your financial life? Email Gene@AskMtM.com