Q. I want to be certain that after I make my yearly IRA required distribution that I can move additional amounts into my Roth IRA. Is there a limit to the amount?
— Planning
A. You cannot transfer funds to satisfy your Required Minimum Distribution (RMD) directly to a Roth IRA.
But once you satisfy your RMD, you may then convert additional amounts from your IRA to a Roth, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.
For example, if your RMD amount for the year was $10,000, you would have to take that amount first, and then you can convert any amount of your remaining IRA to a Roth, he said.
The rules are outlined in IRS Publication 590A.
Sarnecki said a Roth conversion is a taxable event. Although you can convert the entire amount in a given year, one strategy may be to make smaller conversions over several years with the goal to keep your tax bracket the same, he said.
For example, if you fall in the 22% tax bracket for a single filer, the income range for this bracket is $39,476 to $84,200. If after your RMD amount, your taxable income is $64,200, for example, you can convert an additional $20,000 of your IRA to remain in the same marginal tax bracket, Sarnecki said.
“Due to the recent signing of the CARES Act, as a result of COVID-19, RMDs have been suspended for 2020, so you now have an additional amount to convert within your current tax bracket,” he said.
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
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