The One Thing You Can't Do With Your RMD
Key Points
You can't use funds from a tax-deferred plan on a Roth conversion.
You can withdraw the money as required, pay taxes on it, and reinvest it in a Roth.
Otherwise, you can pretty much use RMD funds in any way you'd like.
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If your retirement account was tax-deferred -- in other words, you didn't pay taxes on the money at the time it was contributed -- you'll have to take required minimum distributions (RMDs) at age 73 (or 75, if you were born in 1960 or later).
Once you've paid taxes on withdrawals, you can do just about anything you want with the money, except this one thing.
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One thing you can't do with an RMD
You can't avoid paying taxes by using an RMD for a Roth conversion. Unlike tax-deferred employer-sponsored plans, Roth IRAs don't require account holders to make RMDs. And when you do withdraw money from a Roth IRA, there are no taxes due since you paid them before making contributions to the account.
Overall, it's a pretty sweet deal, and it's natural if you either wish you'd contributed more to a Roth or would like to move money from another account type into a Roth IRA. That's not to say you can't withdraw money from a pre-tax account like a 401(k) or traditional IRA, pay taxes on it, and then reinvest it in a Roth IRA. The key here is that you can't move money directly from a pre-tax account into a Roth IRA in an effort to avoid taxes. The tax man will know when you've made a withdrawal and expects you to pay taxes at your ordinary tax rate.
It can be difficult to remember how fortunate you are to have a retirement account to draw from, especially around tax time. However, it's a very good problem to have.
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