Those Who don't/didn't do Roth Conversions

[braumeister]

I just called Fidelity to discuss IRA conversion. The customer service person said that our RMDs must go to a taxable account and couldn't go to a Roth. Nuts. It has been a while since we did conversions, maybe before RMDs kicked in.

Yes, that surprises many people. Sorry, but that's the rule. Of course, you can still convert any amount over your RMD amount to Roth.

 

[audreyh1]

I just called Fidelity to discuss IRA conversion. The customer service person said that our RMDs must go to a taxable account and couldn't go to a Roth. Nuts. It has been a while since we did conversions, maybe before RMDs kicked in.

You have to take the RMD first each year. After that you can do Roth conversions. If you do QCDs be sure to do those as part of your initial RMD.

 

[Brat]

You have to take the RMD first each year. After that you can do Roth conversions. If you do QCDs be sure to do those as part of your initial RMD.

Why?

 

[PatrickA5]

You have to take the RMD first each year. After that you can do Roth conversions. If you do QCDs be sure to do those as part of your initial RMD.

How would they know if you've done your RMD first? You can take your RMD out of any deferred account. It can even be another brokerage.

 

[pb4uski]

Why?

Why ask why? Thems the rules.

 

[Winemaker]

I think that’s a great plan. I have been thinking about going that route as well. What is your current tax rate? And what do you anticipate your tax rate will be when you get to her RMD?

Our current rate is 24%,and if the current tax law is not extended, we will be in the 28%. Likewise, if I croak, but then she will also get bumped into the NIIT 3.8%. We are already into the first tier IRMAA penalty for parts B &D.

If I can wiggle it, I'll try to wiggle income to stay in 22% bracket. We just wiggled out of our last 2 rental properties.

When I take SS at 70 and if it's not cut, we will have $130k/yr before any distributions or RMDs. RMDs will be over $100k if the balance stays where it is today. We simply over saved, were "very good" investors and greatly blessed.

 

[jazz4cash]

How would they know if you've done your RMD first? You can take your RMD out of any deferred account. It can even be another brokerage.

I don't think there is any way in #ell for them to track all the qualified money flowing via transfers, rollovers, conversions, etc. As for timing I certainly would not get hung up on the word "first". I seem to recall wording to the effect that 'Roth conversion amounts must be in excess of any RMD" (it does not matter which is done first).

 

[audreyh1]

Why?

If you don’t do QCDs before you fulfill your annual RMD requirement then you don’t get to deduct them from your IRA income.

 

[audreyh1]

Our current rate is 24%,and if the current tax law is not extended, we will be in the 28%. Likewise, if I croak, but then she will also get bumped into the NIIT 3.8%. We are already into the first tier IRMAA penalty for parts B &D.

If I can wiggle it, I'll try to wiggle income to stay in 22% bracket. We just wiggled out of our last 2 rental properties.

When I take SS at 70 and if it's not cut, we will have $130k/yr before any distributions or RMDs. RMDs will be over $100k if the balance stays where it is today. We simply over saved, were "very good" investors and greatly blessed.

NIIT is not applied to IRA withdrawals or SS or pension income. It will be applied to the remaining non-wage income such as interest and dividends/distributions.

 

[Gumby]

If you don’t do QCDs before you fulfill your annual RMD requirement then you don’t get to deduct them from your IRA income.

As I recall, we discussed this in another thread. (here) https://www.early-retirement.org/forums/f28/dqotd-rmds-before-roth-conversion-rules-118463.html There was some debate, but I think that after we all clarified our positions, the conclusion was this:

1. If your expected QCD plus your tIRA distribution to your taxable account in a year might exceed your calculated RMD amount for that year, then you should do the QCD first to reap the maximum tax benefit of having the QCD offset some of your RMD.

2. If your expected QCD plus your tIRA distribution to taxable absolutely will equal your calculated RMD for the year, you could do them in either order.



Edit to add: Personally, I plan to leave my taxable distribution until late in the year just so I have room to increase my QCDs should an unexpected need arise.

 

[PatrickA5]

I don't think there is any way in #ell for them to track all the qualified money flowing via transfers, rollovers, conversions, etc. As for timing I certainly would not get hung up on the word "first". I seem to recall wording to the effect that 'Roth conversion amounts must be in excess of any RMD" (it does not matter which is done first).

Agreed. As long as you make sure you do your RMD (from somewhere) before year end, I think you can do conversions any time you want.

 

[audreyh1]

As I recall, we discussed this in another thread. (here) https://www.early-retirement.org/forums/f28/dqotd-rmds-before-roth-conversion-rules-118463.html There was some debate, but I think that after we all clarified our positions, the conclusion was this:

1. If your expected QCD plus your tIRA distribution to your taxable account in a year might exceed your calculated RMD amount for that year, then you should do the QCD first to reap the maximum tax benefit of having the QCD offset some of your RMD.

2. If your expected QCD plus your tIRA distribution to taxable absolutely will equal your calculated RMD for the year, you could do them in either order.

Edit to add: Personally, I plan to leave my taxable distribution until late in the year just so I have room to increase my QCDs should an unexpected need arise.

My language was before you fulfill your RMD. That indicates up to the RMD.

 

[MarieIG]

As I recall, we discussed this in another thread. (here) https://www.early-retirement.org/forums/f28/dqotd-rmds-before-roth-conversion-rules-118463.html There was some debate, but I think that after we all clarified our positions, the conclusion was this:

1. If your expected QCD plus your tIRA distribution to your taxable account in a year might exceed your calculated RMD amount for that year, then you should do the QCD first to reap the maximum tax benefit of having the QCD offset some of your RMD.

2. If your expected QCD plus your tIRA distribution to taxable absolutely will equal your calculated RMD for the year, you could do them in either order.



Edit to add: Personally, I plan to leave my taxable distribution until late in the year just so I have room to increase my QCDs should an unexpected need arise.

When I qualify, I would love to do my RMD as a QCD January 2nd, and then add to it as the year goes on if there is a need. I love the QCD feature.

 

[Gumby]

My language was before you fulfill your RMD. That indicates up to the RMD.

Absolutely. My clarification was not strictly necessary given your wording, but I thought it might help and probably wouldn't hurt.

When I qualify, I would love to do my RMD as a QCD January 2nd, and then add to it as the year goes on if there is a need. I love the QCD feature.

Just keep in mind that your QCDs can't exceed $100k in any year.

 

[OldShooter]

If you don’t do QCDs before you fulfill your annual RMD requirement then you don’t get to deduct them from your IRA income.

The IRS only knows what is on the 1099s, which is your total taxable distributions. It doesn't know what the money was used for or when it was withdrawn. You tell them on your tax returns how much of the withdrawal was used for QCDs but not when the QCDs were made. That amount (up to $100K) is then a subtraction from the taxable total.

 

[jj]

Just keep in mind that your QCDs can't exceed $100k in any year.

The QCD limit goes up to $105k for 2024. The first increase since 2006 when they were created.

 

[audreyh1]

How would they know if you've done your RMD first? You can take your RMD out of any deferred account. It can even be another brokerage.

Regardless, there is a first-dollars-out rule. The IRS deems the first dollars withdrawn from your combined IRAs including QCDs each year to go toward satisfying your RMD.

 

[OldShooter]

Regardless, there is a first-dollars-out rule. The IRS deems the first dollars withdrawn from your combined IRAs including QCDs each year to go toward satisfying your RMD.

IRS has no idea when dollars are withdrawn or how those dollars are used. This statement just doesn't make sense.

It does make sense that QCDs don't count against the RMD, but that doesn't say anything about the order of withdrawal, which (again) the IRS doesn't know.

 

[Al18]

I believe the bank/brokerage must follow these IRA withdrawal rules.

They’re also Roth IRA withdrawal rules that must be followed. All contributions are withdrawn first, all conversions are withdrawn second and all earnings are withdrawn last.

 

[Koolau]

When I qualify, I would love to do my RMD as a QCD January 2nd, and then add to it as the year goes on if there is a need. I love the QCD feature.

Yeah, it's a pretty cool feature of the tax code - and that's saying something.

 

[OldShooter]

When I qualify, I would love to do my RMD as a QCD January 2nd, and then add to it as the year goes on if there is a need. I love the QCD feature.

Pretty much what we do. Not the RMD on Jan. 2 though. We just write QCD checks during the year and we take distributions during the year, including the big December distribution to make the safe harbor withholding amount (plus RMD balance if needed). Since Schwab just sends us QCD checks we write them wherever it's feasible; public radio, church, other of DW's nonprofits, state sheriff association, etc. I don't know if other brokerages provide checks but its so sensible for everyone that I'm sure it will be coming.

 

[rayvt]

I believe the bank/brokerage must follow these IRA withdrawal rules.

If you have IRA accounts at multiple banks/brokerages, then none of them knows your full story, or even can know what you are doing in the other accounts.

 

[SunnyOne]

Read all 22 pages today with only one question, for poster Sunset.

On the first page, you mentioned: "OP - Do you do long term capital gains harvesting to get tax free money or are your pensions too high ?'

Do you mind clarifying what is meant by long term capital gains harvesting for tax free money? I seem to always pay taxes on my LT capital gains.
Thanks

 

[Slim11]

Tax harvesting is selling some stocks at a loss to offset the gains in others.

 

[RetireBy90]

Read all 22 pages today with only one question, for poster Sunset.

On the first page, you mentioned: "OP - Do you do long term capital gains harvesting to get tax free money or are your pensions too high ?'

Do you mind clarifying what is meant by long term capital gains harvesting for tax free money? I seem to always pay taxes on my LT capital gains.
Thanks

Another option is to sell some assets with gains if you are eligible to pay no taxes on the gains. You can sell some to realize the gain, pay no taxes and then after 30 days repurchase that asset, or you can purchase another asset with the cash from the sale. CNBC says

You may qualify for the 0% long-term capital gains rate for 2021 with taxable income of $40,400 or less for single filers and $80,800 or less for married couples filing jointly.

So if your taxable income was say $50K you could realize $30K of cap gains tax free. If you sell then repurchase after 30 days, and you gain $30K each year for say 10 years, you have no tax bill but if you held it you would have $300K of cap gains that you will owe taxes on, and probably IRMAA and other levies.

That is the general description the way I understand it, others may provide more details or correct any errors.