Converting a traditional IRA to a Roth IRA? Clients must be aware of a new rule that requires all this year's Required Minimum Distributions (RMDs) to be taken first. Previously, only the RMD on the account being converted had to be taken before a conversion. Now, all RMDs across all IRAs must be withdrawn before any Roth conversion can take place.
Converting a traditional IRA to a Roth does not eliminate the need to take the RMD. Under the new rule, if someone has multiple IRAs, they must calculate the total RMD from all accounts and withdraw that amount from any combination of their accounts before converting any IRA to a Roth. Failing to follow this sequence could result in penalties or the automatic removal of the unfulfilled RMD from the Roth IRA after conversion.
In the past, when converting a traditional IRA to a Roth IRA, account holders only had to take the RMD from the account being converted. If you had multiple IRAs, you could take the RMD from the account being converted and delay withdrawals from other IRAs until later in the year. Now, all RMDs owed across all IRAs must be taken before any Roth conversion can be completed.
While the new rule adds complexity to Roth conversions, the underlying principle of calculating RMDs remains the same. You still need to calculate the RMDs for each IRA individually, and you can withdraw the total amount required from any of your accounts. However, the critical distinction now is that all RMDs must be completed before any Roth IRA conversion can occur.
