RMD for the year 2020 and Roth Conversion question

[aja8888]

I'm of the age where RMD's are required to be taken and I have previously done so for a few years now. This year, under the recent CARES Act, us old folks have been gifted with the option to take an RMD (if you want to) or just not do do for this year (waived for 2020). I have elected to NOT TAKE MY RMD for 2020.

But, I would rather do a Traditional IRA to ROTH IRA conversion for 2020 using the funds I would have pulled out as my RMD. I have looked around to see if I can do that, but only come up with this guidance from the IRS website:

Since the RMD rule is suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA, another qualified retirement plan, or returned to the original plan.

The CARES Act provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans. The RMD suspension does not apply to qualified defined benefit plans.

The question I have relates to whether or not a conversion to a ROTH IRA is acceptable under this scenario and is opening up a ROTH IRA account (I don't have one open as on now) and putting the RMD funds into it considered a qualified rollover?

I have called Schwab on this and talked with three agents. Their website software to make the usual ROTH conversion indicates that I can't make the conversion unless I have already taken the required RMD amount for 2020. Two agents I spoke with couldn't help me get past the roadblock that I hit when I answered "no" to having already made the RMD conversion. The third agent said "just answer yes" (even though it's not truthful) to get past the RMD question.

I'm looking for some thoughts or advice on this situation.....Thanks!

 

[REWahoo]

I think Vanguard's online tIRA to Roth conversion process has something similar. I just ignored/bypassed the "RMD complete for 2020?" question and did the conversion.

 

[aja8888]

I think Vanguard's online tIRA to Roth conversion process has something similar. I just ignored/bypassed the "RMD complete for 2020?" question and did the conversion.

The problem I had is that I could not ignore the question and had to indicate "yes" I took my RMD for 2020 before it allowed me to go further. That's why I called Schwab.

 

[SecondCor521]

Yes, you can make a Roth conversion this year in the way you describe.

People can generally always make Roth conversions on top of their RMDs if they want to. They just have to report the conversions as income.

Depending on how it's worded on Schwab's website, you can truthfully answer "Yes" because you have taken your required RMD in 2020 already, because your required RMD in 2020 is $0.

You should be able to open a Roth IRA and do the conversion. Opening the Roth IRA at Schwab is of course the easiest option.

Doing a Roth conversion is not the same as a qualified rollover. That language is referring to another provision of the CARES Act which addressed situations where people had already taken RMDs in early 2020 before the CARES Act was passed. This provision allowed them to return those no-longer-required RMDs back into their tax-deferred account in order to effectively undo those RMDs. Since it sounds like you did not even take an RMD in 2020, this provision doesn't really apply to you and you can ignore it.

 

[REWahoo]

Depending on how it's worded on Schwab's website, you can truthfully answer "Yes" because you have taken your required RMD in 2020 already, because your required RMD in 2020 is $0.

^ This.

Looks like Schwab and other financial houses didn't think the one year (?) RMD exception for 2020 was worth making changes to their web pages and left it up to us to work around them.

 

[aja8888]

Yes, you can make a Roth conversion this year in the way you describe.

People can generally always make Roth conversions on top of their RMDs if they want to. They just have to report the conversions as income.

Depending on how it's worded on Schwab's website, you can truthfully answer "Yes" because you have taken your required RMD in 2020 already, because your required RMD in 2020 is $0.

You should be able to open a Roth IRA and do the conversion. Opening the Roth IRA at Schwab is of course the easiest option.

Doing a Roth conversion is not the same as a qualified rollover. That language is referring to another provision of the CARES Act which addressed situations where people had already taken RMDs in early 2020 before the CARES Act was passed. This provision allowed them to return those no-longer-required RMDs back into their tax-deferred account in order to effectively undo those RMDs. Since it sounds like you did not even take an RMD in 2020, this provision doesn't really apply to you and you can ignore it.

Thanks, and yes, I have not taken an RMD this year (2020). It's just that Schwab has not addressed the Cares Act situation on their website with respect to use of the software for IRA conversions to a Roth IRA.

 

[braumeister]

Yes, you can make a Roth conversion this year in the way you describe.

People can generally always make Roth conversions on top of their RMDs if they want to. They just have to report the conversions as income.

Depending on how it's worded on Schwab's website, you can truthfully answer "Yes" because you have taken your required RMD in 2020 already, because your required RMD in 2020 is $0.

You should be able to open a Roth IRA and do the conversion. Opening the Roth IRA at Schwab is of course the easiest option.

This is exactly right. By all means go ahead and convert. You just have to say you have taken your required minimum distribution this year, which is zero.

I had already done a partial RMD in January, but after they passed the new law I just had to make a phone call to Fidelity to get it cancelled and put back in the Trad IRA. Since then I've done several conversions.

This year we also tried out making QCDs, and that turned out to be easy. Starting next year we'll probably be using QCDs a lot to reduce our RMD and keep our MAGI down for IRMAA reasons.