Some retirees proceed to make an important mistake in terms of required minimum distributions, and it could cost them plenty of money.
If a retiree doesn’t need the RMD to pay living expenses, some will roll the cash over to a Roth IRA and treat it as a conversion of the RMD to a Roth IRA. Others will attempt to roll the cash over to a different IRA or qualified retirement plan.
None of those actions are permitted.
If an individual must take RMDs, the primary distribution from a standard IRA throughout the yr is taken into account an RMD until the RMD amount is distributed.
The RMD amount have to be withdrawn from the standard IRA and included in gross income. Only after the RMD is met can any additional amounts remaining in the standard IRA be converted to a Roth IRA.
It is feasible to take the RMD after which contribute that quantity to a Roth IRA (or a standard IRA) after including the RMD in gross income.
There is not any age limit for contributions to a Roth or traditional IRA.
However, you have to meet the IRA contribution requirements because you make a daily IRA contribution, not a rollover.
To contribute, you have to have earned income throughout the yr that’s at the very least equal to the quantity you contribute to the IRA. Only income from employment and self-employment counts as earned income. Investment income and other passive income don’t count as earned income.
Additionally, taxpayers with modified adjusted gross income (MAGI) above a certain level cannot make Roth IRA contributions or can only make a reduced amount.
For single taxpayers, in 2024, the reduction in the utmost Roth IRA contribution amount begins when the MAGI is $146,000 and ceases when the MAGI reaches $161,000. For married couples filing jointly, the contribution limit decreases when the MAGI reaches $230,000 and is $0 when the MAGI reaches $240,000. The MAGI limits are adjusted every year for inflation.
If you fail these two tests, you’ll make an “excess contribution” to the IRA and can be subject to a penalty for every year the surplus amount stays within the IRA.
