Key Takeaways
- Roth conversions and RMDs are calculated separately; converting money does not reduce the amount you must withdraw from traditional IRAs.
- You must take your full RMD from traditional, SEP, or straightforward IRAs before or at the same time as any Roth conversion.
- The IRS calculates your RMD based on your account balance on December 31 of the prior year, regardless of conversions you make in the current year.
- Missing an RMD triggers a 25% penalty on the shortfall, though you may reduce it to 10% if you correct the error within two years.
- Some people use their RMD withdrawal as the source for a Roth conversion, which is a valid strategy but requires careful timing and separate accounting.
How the IRS Calculates Your RMD
Your RMD is determined by dividing your account balance on December 31 of the prior year by a life expectancy factor published by the IRS. For example, if your traditional IRA held $400,000 on December 31, 2023, and you turned 73 in 2024, the IRS life expectancy factor for age 73 is 24.5. Your 2024 RMD would be roughly $16,326.
This calculation happens once per year and is based on the prior year's ending balance. A Roth conversion you make in January 2024 does not change the December 31, 2023 balance that triggered the RMD calculation. The conversion is a separate event that occurs after the RMD obligation is already set.
If you have multiple IRAs — traditional, SEP, or straightforward — you must add up all their December 31 balances to calculate your total RMD. You can then withdraw that total from any one account or split it among them. Roth IRAs do not count toward this calculation and do not have RMDs during your lifetime.
Why Conversions Do Not Satisfy the RMD
The IRS views a Roth conversion as a taxable event, not a distribution. When you convert money from a traditional IRA to a Roth IRA, you are moving it from one account type to another and paying income tax on the amount converted. The money still leaves your traditional account, but the IRS does not count it as satisfying your RMD because the conversion itself is not the same as a distribution taken for the purpose of meeting the RMD requirement.
This distinction matters for tax reporting. A conversion appears on Form 8606 (Nondeductible IRAs), while an RMD appears on Form 1099-R with a code indicating it is an RMD. The IRS tracks these separately, and if you do not take your RMD, the agency will know it even if you converted a large amount that year.
The Correct Order: RMD First, Then Conversion
The safest approach is to take your RMD first, then convert additional money if you wish. For example, if your RMD is $16,326 and you want to convert $50,000 total, you would withdraw $16,326 as your RMD, then convert $50,000 from the remaining balance. This keeps the two transactions clear and avoids any risk of the IRS disallowing the conversion as an RMD substitute.
Some people use their RMD withdrawal as the source for a Roth conversion. This is permitted. You withdraw the $16,326 as your RMD, and then when ready convert it to a Roth. The withdrawal counts toward your RMD obligation, and the conversion is a separate taxable event. You pay income tax on the $16,326 conversion, but you have satisfied both requirements in one transaction.
Timing matters if you use this strategy. The RMD must be taken by December 31 of the year it is due (or by your tax filing important date if it is your first RMD). The conversion can happen anytime, but it is cleaner to do it in the same calendar year so your records align with the tax year.
What Happens If You Miss Your RMD
If you do not take your full RMD by the important date, the IRS imposes a penalty of 25% on the amount you failed to withdraw. As of 2024, this is one of the steepest penalties in the tax code. If your RMD was $16,326 and you took nothing, you would owe a $4,081 penalty on top of the income tax you owe on the amount you should have withdrawn.
You can reduce the penalty to 10% if you correct the shortfall within two years of the important date. This means taking the missed RMD and filing an amended return (Form 1040-X) to report it. The IRS will not automatically waive the penalty, but you can request a waiver by submitting Form 2758 (process for Extension of Time To File U.S. Individual Income Tax Return) or a written statement explaining reasonable cause, such as a serious illness or a mistake by your financial institution.
A Roth conversion does not erase a missed RMD. If you converted $50,000 but did not take your $16,326 RMD, you still owe the penalty on the $16,326 shortfall.
Roth Conversions and Your Tax Bracket
Many people convert to a Roth in years when their income is lower, to lock in a lower tax rate. An RMD can complicate this strategy because it adds to your taxable income whether you want it to or not. If you are in a low-income year and planning a conversion, your RMD may push you into a higher tax bracket, increasing the tax on both the RMD and the conversion.
This is why timing matters. If you know you have an RMD coming, you might convert less that year, or convert in a different year when the RMD is smaller or when you have other income sources that will not be affected. Conversely, if you have a large RMD, you might skip the conversion that year and wait until the following year when the RMD is smaller.
Special Rules for Inherited IRAs
If you inherited a traditional IRA from someone other than your spouse, you have an RMD based on your own life expectancy, and the same rule applies: conversions do not count toward it. You must take your RMD from the inherited IRA, and any conversion is a separate transaction.
If you inherited a Roth IRA, you do have an RMD during your lifetime (unlike someone who opened their own Roth). However, you cannot convert an inherited Roth to another account, so this situation does not overlap with Roth conversion planning.
Frequently Asked Questions
Can I convert my RMD to a Roth to avoid paying tax on it?
No. You must pay income tax on the RMD whether you take it as a distribution or convert it to a Roth. Converting does not eliminate the tax; it just moves the money to a tax-free account for future growth. You still owe tax in the year of conversion.
What if I convert money and forget to take my RMD?
The conversion does not count as your RMD, so you will owe a 25% penalty on the amount you failed to withdraw. You must take the RMD separately by December 31. If you catch the mistake within two years, you can reduce the penalty to 10% by filing an amended return.
Do I have to take my RMD before I convert, or can I convert first?
You can convert first, but you still must take your RMD by December 31. The order does not matter to the IRS, only that both happen by the important date. For clarity, most people take the RMD first and then convert additional money if they wish.
If I have multiple IRAs, can I take my RMD from one and convert from another?
Yes. You calculate your total RMD across all traditional, SEP, and straightforward IRAs, but you can withdraw it from any combination of those accounts. You can take the RMD from one IRA and convert from a different IRA in the same year. Just make sure your total RMD withdrawal meets the full amount owed.
Does my Roth IRA balance count toward my RMD?
No. Roth IRAs do not have RMDs during your lifetime. Only traditional, SEP, and straightforward IRAs count. After you pass away, your beneficiaries will have RMDs from the Roth, but you do not.