I am required to take my first Required Minimum Distribution (RMD) from my IRA this year. Could I do it by converting that amount to Roth IRA to satisfy the requirement?
The key word in required minimum distributions (RMDs) is the word “required.” The RMD funds cannot remain or return to any retirement account once they are distributed. In addition, a Roth conversion is treated as a rollover for tax reporting purposes and an RMD cannot be rolled over. When you have an RMD that is due, you generally have two options: (1) take the amount into income; or (2) donate it to a charity using the qualified charitable distribution rules. The second option allows you to exclude the RMD from your taxable income but is only available to RMDs from IRAs.
Question: What is the deadline to take my RMD?
The deadline is December 31 each year. For your first distribution, you get a 3 month extension until April 1 of the following year you turn 70 ½. The same generally holds true for 401K plans and other qualified retirement plans. If you are over 70 ½ and still working, you can delay your RMDs from your 401K plan until after you retire.
Can I open an IRA if I'm retired?
The Internal Revenue Service restricts individual retirement account ownership to those with earned income. Social Security, pension, annuity and disability payments do not qualify under IRS rules. Investment income does not qualify either. Wages, commissions, salaries and tips, in addition to taxable military pay and alimony, are considered earned income.
After age 50, you can put no more than $6,500 per year in your IRA(s). As regards contributions, the IRS sees all IRAs as one IRA. So if you have two IRAs, you can, for example, contribute $4,000 to one and $2,500 to the other. In addition, you can contribute no more than you earn. If you earn only $3,000 doing part-time work after retirement, for example, you can contribute only $3,000 that year. Because of the age 70 1/2 rule, you have only the number of years until you turn 70 ½ years to contribute to an account.