Dear Rick:
I have a few questions regarding required minimum distributions that I hope you can help me with. My situation is that I will turn 70½ in July of this year. I don’t need the money from the IRA, as my pension and Social Security more than covers all my needs. My first question is: Is there any way I can avoid taking a distribution? If I do have to take a distribution, I am confused as to when I have to take it. Everyone tells me it’s when you turn 70½; however, I was at one of your talks a couple years ago and I remember you said something different. Lastly, since I don’t need the money, it was recommended to me that I take the money, pay the tax and put it into a Roth IRA; is that a good move for me?

Steve

Dear Steve:
When it comes to required minimum distributions from a traditional IRA, you must begin taking distributions when you turn 70½. The one big exception to the rule deals with Roth IRAs. If the money was in a Roth IRA, there would not have to be a distribution, as the required minimum distribution laws do not apply to Roth IRAs. Therefore, in the case at hand since the money is in a traditional IRA, you have no alternative but to take a distribution.

With regard to when you have to take the distribution, the rules are that in the year you turn 70½, you must take your required minimum distribution and then every year thereafter. There is, however, one exception to the rule and that is in the year you turn 70½ . For your first required minimum distribution, you can delay your distribution to April 1st of the next year. For example, if someone turns 70½ this year in 2018, they can delay their 2018 required minimum distribution until April 1, 2019.

Although delaying the distribution until April 1st of the next year may sound appealing, it’s important to keep in mind that the distribution on April 1, 2019 is your 2018 distribution which means that you still have to take another distribution by December 31, 2019. The result is that you would have two taxable distributions in 2019 which can result in putting you into a higher tax bracket, causing you to lose deductions and to potentially pay higher Medicare premiums. Therefore, for anyone who is thinking of delaying their first required minimum distribution into the next year, you need to explore how that will impact your tax situation.

Whoever told you that you can put your required minimum distribution into a
Roth IRA doesn’t know what they are talking about. Required minimum distributions are not eligible to be converted into a Roth IRA. You can convert money above and beyond your required minimum distribution, but that is it. In that regard, in the situation at hand, converting a portion of your traditional IRA into a Roth IRA on a year-by-year basis may be a good strategy and something you may wish to explore.

When it comes to required minimum distributions, people are sometimes confused as to when the distribution during the year must occur. For example, if you turned 70½ in September, does a distribution from the IRA in February count? The answer is yes. Basically, any distribution in the year you turn 70½ does count towards your required minimum distribution. Lastly, people should always know that the required minimum distribution is just a minimum; you are free to take more from your IRA.

Good luck!

If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com