moving money from traditional IRA to a Roth IRA
I am 67, retired, collecting Social Security and a pension – total monthly income from these at $5100. My wife (66) is also collecting Social Security of $1500. In 2018 I rolled over my employer 401k to an IRA, current value is $700,000. We have two other savings accounts totaled value at $55,000. I am thinking about moving money from the IRA to a Roth IRA, hoping to reduce the RMD from the IRA which I understand will begin when I turn 72 in 5years. Plus I understand withdrawals from a Roth after five years are tax free. Does transferring the money make sense? Just want to get your opinion on this. My accountant said I can transfer about $24,000 yearly and not impact my current tax bracket. I understand the RMD takes into account all IRAs, but are Roth IRA also include in the RMD calculation.
Terry Says
The idea of converting a traditional Rollover IRA to a Roth is that you want to leave the money in the Roth growing tax-free from this point on. And yes, after the rollover, you must leave the money in the Roth for at least 5 years to avoid penalties.
Importantly, (and correcting your last sentence), once it’s inside the Roth it is NOT considered for RMDs, since no RMDs are required for a Roth.
You’ve done the smart thing in asking your accountant to figure out how much you can convert without impacting your tax bracket. But also ask if that conversion amount will impact the cost of your Medicare Part B and Part D (drug) plans.
AND, make sure he/she calculates the taxes that must be paid — and that you pay them with money OUTSIDE the IRA.
And then make sure that using your “other savings’ won’t leave you short of liquidity for the next five years until you can start withdrawing from the Roth without penalty if you need money.
