Ed slott answers ira savers’ rmd questions

Alamy Stock Photo En español ASK ED SLOTT Confused about IRAs, 401(k)s, Roths, taxes and more related to saving for retirement? Ed has the answers. Email your questions to [email protected].

A: Easy answer: No. IRAs are subject to RMDs after reaching age 72. Whether you want to take the money or not, you must. However, those RMDs cannot be converted to Roth IRAs. It’s logical to

think that they can because the tax is being paid on the RMDs, so why not simply convert those funds to a Roth? But the law is clear that you cannot convert RMDs. The law is also clear that

you must take the RMD prior to converting. Once your annual RMD is satisfied, then you can go ahead and convert any part of the balance in your IRA during the year. Here’s something you can

do, though. As long as you are already required to take these annual RMDs, why not use those funds to pay the tax to convert any part of the rest of your traditional IRA funds to a Roth

IRA? This way you can reduce or eliminate those draining RMDs in the future. A: Unfortunately, your friend’s problem is a common one. Beneficiaries sometimes forget about inherited IRAs and

often overlook the required minimum distribution rules. These rules do apply to inherited IRAs and if RMDs are missed, there is a 50 percent penalty on the amount that was not taken. Based

on your question, it sounds like RMDs may have been missed over many years. It is possible to get the penalties waived for these missed RMDs. To get a waiver from the IRS, the missed RMDs

would need to be distributed and IRS Form 5329 filed for each year missed. A waiver of the penalties can be requested. The good news is that the IRS has generally been willing to grant these

requests. Your friend should reach out to a knowledgeable tax adviser to help him with this process, especially calculating the many years of missed RMDs that will now all have to be taken

in one year to get relief on the 50 percent penalty for each of those years. ------------------------- AARP MEMBERSHIP -JOIN AARP FOR JUST $15 FOR YOUR FIRST YEAR WHEN YOU ENROLL IN

AUTOMATIC RENEWAL Join today and save 25% off the standard annual rate. Get instant access to discounts, programs, services, and the information you need to benefit every area of your life.

  ------------------------- A: Yes. For IRAs you need to calculate the RMD for each one you own (but not Roth IRAs, since they are not subject to lifetime RMDs). Once you know the required

amount (your total RMD amounts from all your IRAs), that RMD can be taken from any one or a combination of your IRAs. You do not have to account for them to other companies holding your

IRAs, but it would be wise to make sure they know you have already satisfied the RMD from one of your other IRAs, so they do not distribute that RMD to you. The financial institutions do

report that you are subject to RMDs, but as long as you satisfy your overall RMD amount, that will show on your tax return. The tax withholding is a different issue. Yes, your RMDs will

generally be fully taxable (unless your IRA balance includes nondeductible IRA contributions you made over the years — you report these on Form 8606). You can either pay that tax by making

estimated tax payments throughout the year, or by having the tax withheld from your distribution. If that is not done, you will likely owe the tax when you file your tax return, but if you

owe too much you could be subject to a penalty for not paying in the right amount of estimated taxes. A: Yes, you are correct that beginning in 2022, any funds you withdraw from any of your

Roth IRAs will be tax and penalty free, since you both satisfied the five-year holding requirement (which for you began on Jan. 1, 2017, the year you first opened a Roth IRA) and are over

59½ years old. _Ed Slott, CPA, is one of the nation’s top experts on retirement plans. For more than 30 years, he has educated both consumers and financial advisers on retirement tax-saving

strategies. His most recent book is _The New Retirement Savings Time Bomb _(Penguin Random House, 2021). Visit www.IRAHelp.com to learn more._​ ALSO OF INTEREST * 9 states that don’t have an

income tax * How to claim missing stimulus payments * How to calculate capital gains and losses on your tax return