Ira withdrawals to Roth

[beachbaker]

My wife and I have reached the age of RMD's and have been taking above the required amount and trying to reduce our Traditional IRA balances. We are taking advantage of the extra $12000 additional over 65 credit to take more. Our income is IRA withdrawals, SS for both and my wife gets a California Public Retirement pension. We have increased the amount of Federal Tax taken out of her pension to cover about three quarters of our taxes due. Since I have most of the taxes taken out monthly from her pension and some additional tax from RMD's if I take additional this month what I think is covered by both of these tax payments do I need to over pay in tax since the monthly payments will not be complete until December? Thanks, Curt

 

[NgineER]

Others are better at this then I am, but I believe that you can cover all your estimated taxes with a t-IRA withdrawal at the end of the year. By requesting that your IRA custodian withhold taxes from the distribution, the IRS treats those funds as if they were paid evenly throughout the year, helping you avoid underpayment penalties. That way you don't have to fool around with extra withholding or guess work until the end when you should have a pretty firm handle on taxes due.

I hope others will chime in.

 

[Dash man]

Beware of IRMAA. One dollar over can increase your Medicare premiums in two years.
The answer to your question is no, you don’t need to overpay if you have calculated your estimated taxes and your payments will cover it.
The $12,000 tax break does phase out as your income increases, so check on that too.

 

[TheWizard]

Where does the "Roth" in thread title come into play here?

 

[pb4uski]

My wife and I have reached the age of RMD's and have been taking above the required amount and trying to reduce our Traditional IRA balances. We are taking advantage of the extra $12000 additional over 65 credit to take more. Our income is IRA withdrawals, SS for both and my wife gets a California Public Retirement pension. We have increased the amount of Federal Tax taken out of her pension to cover about three quarters of our taxes due. Since I have most of the taxes taken out monthly from her pension and some additional tax from RMD's if I take additional this month what I think is covered by both of these tax payments do I need to over pay in tax since the monthly payments will not be complete until December? Thanks, Curt

No. As long as your withheld taxes for 2026 exceed your 2026 tax liability, you're all set. While you are only totally sure of this when you finish your 2026 tax return, your sources of income are very knowable in advance so it shouldn't be a problem at all as long as your estimate is right. Use the dinkytown tax calculator to verify.

 

[engineernerd]

As long as you pay your taxes through withholding rather than quarterly estimated tax, you could have your entire tax withheld on December 31 and have it considered as paid evenly throughout the year. And you only need to pay to the relevant safe harbor limit by withholding; if safe harbor is lower than the amount due, you can pay the remainder of your 2026 tax by sending payment by April 15, 2027.

 

[engineernerd]

Beware of IRMAA. One dollar over can increase your Medicare premiums in two years.
The answer to your question is no, you don’t need to overpay if you have calculated your estimated taxes and your payments will cover it.
The $12,000 tax break does phase out as your income increases, so check on that too.

The $12,000 starts being reduced at MAGI of $150k for MFJ and is completely gone at MAGI of $250k. The first IRMAA tier is in between, somewhere around $220k.

 

[Al18]

An IRA withdrawal is not a Roth IRA conversion. If you want to do a Roth IRA conversion, call your broker and instruct them how much to convert and if you’ll pay the taxes. There is a 5 year holding period before you can withdraw earnings from the conversion.

 

[TheWizard]

...There is a 5 year holding period before you can withdraw earnings from the conversion.

That depends.
OP is 73, well beyond 59.5, so likely no waiting period whatsoever...

 

[RetiredHappy]

That depends.
OP is 73, well beyond 59.5, so likely no waiting period whatsoever...

If you are over 59.5 yo and make your first Roth conversion/contribution, I believe it is still subject to 5 years.

 

[TheWizard]

If you are over 59.5 yo and make your first Roth conversion/contribution, I believe it is still subject to 5 years.

Yes, you need to have opened and funded a Roth IRA with $1 or more at least five years beforehand...

 

[beachbaker]

I was not clear that everything over our RMDs we withdraw from TIRA is going into our Roths. I looked at the tax bomb for my estate, did the math a few years ago and realized while we are both alive with two standard deductions we needed to withdraw until the 12% tax limit.

 

[disneysteve]

I was not clear that everything over our RMDs we withdraw from TIRA is going into our Roths. I looked at the tax bomb for my estate, did the math a few years ago and realized while we are both alive with two standard deductions we needed to withdraw until the 12% tax limit.

To be clear, you are doing:
1. t-IRA RMDs and
2. Roth conversions

 

[pb4uski]

To be clear, you are doing:
1. t-IRA RMDs and
2. Roth conversions

And to be clearer, tIRA RMDs as required and then Roth conversions to the top of the 12% tax bracket? If so, it sounds smart to me.

 

[SevenUp]

I looked at the tax bomb for my estate, did the math a few years ago and realized while we are both alive with two standard deductions we needed to withdraw until the 12% tax limit.

Do check with something like the tool described in to see what your actual marginal tax rate(s) would be across a range of Roth conversion amounts.

The way Taxation of Social Security benefits works, your marginal rate may not be your bracket rate.

Have you looked at the rates the surviving spouse might have to pay?

If you expect your estate will be sizeable (however you define that), have you estimated the marginal tax rates your heirs might have to pay on traditional balances?

 

[beachbaker]

Yes that is exactly what we are doing. My adult children have well paid jobs so I expect they will be paying 24% of inheritance in tax.

And to be clearer, tIRA RMDs as required and then Roth conversions to the top of the 12% tax bracket? If so, it sounds smart to me.

 

[pb4uski]

Huh? Do you mean 24% on inherited tIRA withdrawals?

 

[beachbaker]

Huh? Do you mean 24% on inherited tIRA withdrawals?

No, I expect with the TIRA they would receive added to their current income they would be pushed into 24% tax bracket. Since they would have ten years to withdraw TIRA they receive I expect that is what rate the inheritance would be taxed at.

 

[Z3Dreamer]

We studied this ad nauseum and decided that we should Roth convert well into the 22% bracket. We decided to stay a comfortable margin below IRMAA. Another personal decision based on how much you have in your IRA, how well off the kids are, etc.

 

[pb4uski]

No, I expect with the TIRA they would receive added to their current income they would be pushed into 24% tax bracket. Since they would have ten years to withdraw TIRA they receive I expect that is what rate the inheritance would be taxed at.

And other than being wordier, just how is that different from what I wrote?

 

[TheWizard]

Yes that is exactly what we are doing. My adult children have well paid jobs so I expect they will be paying 24% of inheritance in tax.

The 24% Federal tax bracket is not a bad place to be. I've been in it since tax law changed a while back and I always will be unless the law changes again.

So I'm not sure it's a problem...

 

[JBTX]

We studied this ad nauseum and decided that we should Roth convert well into the 22% bracket. We decided to stay a comfortable margin below IRMAA. Another personal decision based on how much you have in your IRA, how well off the kids are, etc.

Right now you can do RMD, plus Roth conversions and stay in the 12% bracket. What makes you think in the future RMDs alone will get you to the 22% bracket? It is certainly possible if the Ira grows substantially, but I wouldn’t be in a rush to convert now at 22%, to avoid paying in the future at…22%

 

[VanWinkle]

If you are over 59.5 yo and make your first Roth conversion/contribution, I believe it is still subject to 5 years.

Contributions can come out without penalty, but earnings must wait 5 years or be subjected to the 10% penalty. This is only true of the original Roth account timer of 5 years. Conversions can be accessed anytime as long as the first 5 year timer is satisfied and the owner is over 59 1/2.

Order of withdrawals from TIRA:

QCD first
RMD second
Roth Conversion third

 

[TheWizard]

...Order of withdrawals from TIRA:

QCD first
RMD second
Roth Conversion third

Actually, QCDs can be intermixed with normal distributions to satisfy your RMD for the year...

 

[VanWinkle]

Actually, QCDs can be intermixed with normal distributions to satisfy your RMD for the year...

I wouldn't intermix, they should be completed before you reach your RMD amount for the year if you want them to reduce your RMD income. It is much easier if you do them first instead of keeping track.