A Roth conversion does not count as a required minimum distribution, even though both involve moving money out of a traditional IRA

The IRS treats these as two separate transactions. A required minimum distribution (RMD) is money you must withdraw from a traditional IRA once you reach age 73 (as of 2023). A Roth conversion is a voluntary transfer you choose to make. Because they are different actions with different rules, the IRS does not let you satisfy your RMD requirement by converting money to a Roth instead.

This matters because if you convert money but do not also withdraw your full RMD, you will owe a penalty on the amount you failed to withdraw. The penalty is 25% of the shortfall (or 10% if you correct it within two years). You cannot use the conversion to avoid this penalty.

However, there is a practical connection: money you withdraw to fund a conversion can count toward your RMD if you do it in the right order. Understanding that order saves you from withdrawing more than you need.

Key Takeaways

  • A Roth conversion is a separate action from an RMD and does not satisfy the RMD requirement, even if you move money out of your traditional IRA.
  • If you are subject to an RMD and you convert money without also withdrawing your full RMD amount, you will owe a 25% penalty on the shortfall.
  • You can use the same withdrawal to both fund a conversion and satisfy your RMD if you withdraw your RMD first, then convert the rest.
  • The IRS counts the RMD based on the balance in your IRA on December 31 of the prior year, regardless of what you do with the money after you withdraw it.

How the IRS sees RMDs and conversions as different things

The IRS has separate rules for each transaction because they serve different purposes. An RMD is a requirement — the government wants you to start drawing down your tax-deferred savings at a certain age. A conversion is optional — you choose whether and when to move money into a Roth account.

Because they are different, the IRS does not allow one to substitute for the other. If your RMD for the year is $10,000 and you convert $10,000 to a Roth, you still owe the $10,000 RMD. The conversion does not erase that obligation. You would need to withdraw an additional $10,000 to satisfy the requirement.

The penalty for missing an RMD is steep: 25% of the amount you should have withdrawn but did not. So if you convert $10,000 but owe a $10,000 RMD and do not withdraw it, you owe a $2,500 penalty on top of the taxes you already owe on the conversion.

The one way a withdrawal can serve both purposes

Although a conversion cannot count as an RMD, a single withdrawal from your traditional IRA can be used for both. The key is the order in which you treat the money.

Here is how it works: You withdraw $15,000 from your traditional IRA. Your RMD for the year is $10,000. You designate the first $10,000 as your RMD withdrawal. The remaining $5,000 you convert to a Roth. In this case, you have satisfied your RMD requirement and also funded a conversion, using one withdrawal.

The designation matters because the IRS needs to know which part of your withdrawal counts as the RMD. You make this designation when you request the withdrawal from your IRA custodian. If you do not specify, the IRS may treat the entire withdrawal as a conversion, leaving your RMD unsatisfied.

What happens if you convert before taking your RMD

Many people convert money early in the year, then take their RMD later. This is allowed, but you must still withdraw your full RMD amount by December 31. The conversion does not reduce the amount you need to withdraw.

For example, suppose your RMD is $12,000 and you convert $8,000 in February. You still need to withdraw $12,000 by year-end to satisfy the requirement. The $8,000 conversion is separate. You would need to withdraw an additional $12,000 (or $4,000 more if you want to count the conversion withdrawal toward the RMD, using the method described above).

The timing of the conversion does not matter to the IRS. What matters is that by December 31, you have withdrawn at least your full RMD amount from your traditional IRA.

How the RMD amount is calculated, regardless of conversions

Your RMD is based on a snapshot taken on December 31 of the prior year. The IRS looks at the balance in your traditional IRA on that date, divides it by a life expectancy factor, and that is your RMD for the current year. Conversions you make during the current year do not change that calculation.

This means that if you convert a large amount early in the year, it does not reduce your RMD for that year. The RMD was already locked in on December 31 of the prior year. You still owe the full amount.

However, conversions do affect next year's RMD. If you convert $50,000 in January, your IRA balance on December 31 will be lower (because you moved $50,000 out), and your RMD for next year will be calculated on that lower balance.

Common mistakes to avoid

The most common error is assuming that a large conversion satisfies the RMD requirement. It does not. If you plan to convert money and you are subject to an RMD, withdraw your RMD first, then convert the rest. This keeps you compliant and avoids the 25% penalty.

Another mistake is not designating which part of a withdrawal is the RMD. If you withdraw $15,000 and do not tell your custodian that $10,000 is your RMD and $5,000 is a conversion, the custodian may treat the entire amount as a conversion. You would then be short on your RMD. Always specify in writing when you request the withdrawal.

A third mistake is converting money and forgetting to take the RMD in a later month. Conversions are straightforward to track because you initiate them. RMDs are straightforward to forget because they are automatic obligations. Set a calendar reminder for November or December to confirm you have met your RMD requirement for the year.

What to do if you missed your RMD

If you did not withdraw your full RMD by December 31, you can still fix it. The IRS allows you to withdraw the shortfall in the following year and request a waiver of the 25% penalty if you have a reasonable cause.

Reasonable cause includes circumstances like illness, a custodian error, or confusion about the rules. straightforward forgetting is harder to defend, but it is not automatic disqualification. You must file Form 5329 with your tax return and explain why you missed the important date.

The sooner you withdraw the shortfall, the better your case for a penalty waiver. If you discover the miss in January, withdraw the amount when ready and file Form 5329 with your next tax return. Do not wait until April or later.

Frequently Asked Questions

If I convert $20,000 and my RMD is $15,000, do I still need to withdraw the full $15,000?

Yes. You can use $15,000 of the conversion withdrawal to satisfy the RMD, but you must designate it as such when you request the withdrawal. The remaining $5,000 is treated as a conversion. If you do not make this designation, the IRS may treat the entire $20,000 as a conversion, leaving your RMD unsatisfied and triggering a penalty.

Can I convert money from my spouse's IRA to satisfy my RMD?

No. An RMD must come from your own IRA. You cannot use your spouse's IRA, a 401(k), or any other account to satisfy your RMD requirement. Each account has its own RMD calculation, and you must withdraw from the account where the RMD is owed.

Does a conversion to a Roth reduce my RMD for next year?

Indirectly, yes. The RMD for next year is based on your IRA balance on December 31 of this year. If you convert $30,000, your balance on December 31 will be $30,000 lower, so next year's RMD will be smaller. But this year's RMD is already set and does not change.

What if I convert money in December after I have already taken my RMD?

That is fine. You can take your RMD in January and convert money in December, or vice versa. The order does not matter as long as both happen by December 31. The conversion does not reduce the RMD you already withdrew.

Do I owe taxes on both the RMD and the conversion?

Yes. The RMD is taxed as ordinary income in the year you withdraw it. The conversion is also taxed as ordinary income in the year you convert it (on the pre-tax portion of the money you move). These are two separate taxable events, even if you use the same withdrawal to fund both.