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In-Plan Roth Conversion & 2024 RMD


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This is in regards to 2024 being the first year that RMD's are no longer required from Roth Accounts.

As of 12/31/23, owner has no Roth balance in his account.

On 4/1/24, he converts through an in-plan Roth Conversion, 1/2 of his account balance to Roth. 1099-R will be issued.

The question is whether he is still required to take a full RMD based on his 12/31/23 balances/money sources, or if this Roth conversion can cover a portion, if not a half or even all of the actual RMD?

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Bill - thank you sir.

I'm not a tax strategist, but they are focused on growing non-taxable earnings.  Personally, I'm not clear why they want to increase their tax liability this year anyway, but that seems to be what they've been advised.

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I'm certainly no investment expert or tax strategist either. I have sometimes seen a strategy where part of the "diversification" is that the "aggressive" investments are converted to Roth, on the theory that if they hit a home run and get big returns, it'll be tax free. The conservative investments remain as pre-tax.

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With Roth accounts in 401(k) plans not being subject to the RMD rules, some people without other taxable income other than Social Security are looking to reduce prospective current year income below the threshold that triggers taxation of their Social Security benefits.  Add in the potential exemption of earnings from taxable income from the Roth accounts, this may be an attractive option for someone who is betting on living longer than their average life expectancy.

There also are individuals who see the sun setting in 2025 on the Tax Cuts and Jobs Act provisions and they are anticipating a hike in their personal rates.

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1 hour ago, Belgarath said:

I'm certainly no investment expert or tax strategist either. I have sometimes seen a strategy where part of the "diversification" is that the "aggressive" investments are converted to Roth, on the theory that if they hit a home run and get big returns, it'll be tax free. The conservative investments remain as pre-tax.

i get this strategy, I'm just questioning the age at which it's being done.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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On 6/13/2024 at 12:09 AM, Bill Presson said:

No, ma’am. He paid tax on the conversion but he didn’t take a distribution based on the 12/31 balance. So he still has to do that. 
 

 

Agree. Further, the RMD is not eligible for rollover, and under the RMD is included in first distribution rule, it appears that the RMD must be taken before the in-plan conversion. So, yes, the RMD would be based on the full 12/31/2023 balance' If he did not take the RMD before the in-plan conversion, don't we have an ineligible rollover to the DRA (of the RMD amount)?

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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