New Rule: All IRA RMDs Must Be Satisfied Prior to Doing a Roth Conversion
Yes, you read that title correctly. This rule was confirmed in the 2024 final SECURE Act regulations, released this past July. If a person has multiple IRAs, even if they are held at different custodians, the total aggregated IRA required minimum distribution (RMD) must be withdrawn before any Roth IRA conversion (or 60-day rollover) can be completed. [This does NOT include RMDs from work plans like a 401(k).]
Aggregation rules tell us that RMDs for each IRA must be calculated separately, but the aggregated total may be taken from any one or more of a person’s IRAs. The first dollars distributed from an IRA in a year when RMDs are due are considered the RMD. In addition, we know that RMDs cannot be rolled over or converted. Ergo, the RMD must be taken prior to any conversion – sequencing matters.
Example: Arnold (age 80; Uniform Lifetime Table factor of 20.2) has three IRAs held at three different custodians. The total balances and RMDs (rounded up) for each IRA are as follows:
IRA #1: $100,000 year-end balance; RMD: $4,951
IRA #2: $300,000 year-end balance; RMD: $14,852
IRA #3: $450,000 year-end balance; RMD: $22,278
Arnold’s total aggregated RMD is $42,081. He can split this up any way he chooses between his three IRAs. He must take the total amount before the end of the year.
Prior to taking any distributions, Arnold tells his financial advisor that he would like to do a Roth conversion of IRA #1. Arnold must take the entire $42,081 before a Roth conversion can be processed with IRA #1 or any of his other IRAs. It is not good enough to ONLY take the $4,951 RMD from IRA #1 and then subsequently do a conversion within that same IRA #1.
If Arnold completes a Roth conversion before he satisfies his entire $42,081 RMD for the year, whatever remained of his RMD before the conversion is considered an excess contribution in the Roth IRA and must be removed.
For example, if Arnold took only the $4,951 RMD from IRA #1 and then did a $50,000 Roth conversion within that same IRA #1 (or any of the others), he would have an excess contribution in the Roth IRA of $37,130. This represents what Arnold had remaining on his total aggregated RMD ($42,081 – $4,951 = $37,130). Arnold would then have to follow the excess contribution corrective measures.
Again, sequencing matters. RMDs have always had to be taken before any Roth IRA conversion. The difference now is that ALL of a person’s total aggregated IRA RMDs must be withdrawn prior to a conversion – not just the RMD on the account being converted. Be careful here as this new rule flies in the face of how many RMDs and conversions have been processed in the past.
By Andy Ives, CFP®, AIF®
IRA Analyst
Ed Slott and Company, LLC
Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.