Moving IRA Distribution through a Roth

[FlaGator]

I'm taking a distribution from a Trad IRA for 2023 living expenses,

Ignore taxes on that, already addressed. Roth is protected from penalties due to my age.

Won't need the total amount immediately. Any reason to not do a Roth conversion on a portion and let some of it grow tax-free? Would go conservate on the Roth part and draw it down late in the year - ST Treasurys and MMKT in the meantime. Will keep the nearby needs in a regular (taxable) account in cash or MMKT.

Seems straightforward, but I could be missing something. What's the wisdom of the Board?

If there is already a thread on this, please redirect me.

I appreciate the experience and comments

 

[SecondCor521]

The only reasons not to that I can think of:

1. Your distribution is an RMD. RMDs are not eligible for Roth conversions. I suspect this isn't the case with you.

2. You don't want to deal with the hassle of doing the Roth conversion and a later withdrawal. Hassle is probably minimal.

3. You're under 59.5 and the Roth conversion would be subject to the 5 year conversion waiting period. This also doesn't sound like you.

Otherwise, yeah, a conversion and a withdrawal would both be taxed as ordinary income. The conversion has the additional benefit of growing tax-free as long as you don't use it.

 

[FlaGator]

The only reasons not to that I can think of:

1. Your distribution is an RMD. RMDs are not eligible for Roth conversions. I suspect this isn't the case with you.

2. You don't want to deal with the hassle of doing the Roth conversion and a later withdrawal. Hassle is probably minimal.

3. You're under 59.5 and the Roth conversion would be subject to the 5 year conversion waiting period. This also doesn't sound like you.

Otherwise, yeah, a conversion and a withdrawal would both be taxed as ordinary income. The conversion has the additional benefit of growing tax-free as long as you don't use it.

Thanks for the quick review and response. In turn,
1. Over 59.5, but under 70+. Correct assumption.
2. Correct, the hassle is minimal, just another form for my well-paid tax account in 2024.
3. Correct.

Your last point is the big one. The script of the last few years has flipped.

The Beautiful Princess went back work making 50% more than she did a few years before. In the span of a few months, I've gone from managing income down to keep ACA subsidies, to having employer-provided insurance and enough household income to be attentive to minimizing the inevitable taxes where possible.

Current thinking is to take a normal distribution for the next 6 months' expenses and Roth convert enough for the second half. Savings won't be substantial, but $500-$1,000 of interest, free of any tax, isn't bad. If I don't need all of it, it grows tax-free.

The other option is to take the full amount as a normal distribution and put it into munis. Still need to look at rates and run the math on that scenario.

Thanks again!