Dear Liz: We are just getting to the age where mandatory distributions from our retirement accounts have to start. We don’t need the additional cash as we have great pensions. If we convert to Roth IRAs, will the amount in the Roth be subject to minimum deductions going forward? Will our heir have to pay any taxes on the money in the Roth account when inherited? Can we count the amount converted to the Roth account against the mandatory required distribution? I do understand that all the money will be taxed as income when coming out of the retirement accounts.
Answer: Required minimum distributions and Roth conversions have to be separate transactions. Conversions can’t count against your RMDs, and you’re not allowed to put an RMD into a Roth.
Any money you convert to a Roth would, however, reduce future RMDs, since Roths aren’t subject to mandatory distributions. Your heirs wouldn’t pay taxes on inherited Roth accounts, either, although they would be required to drain those accounts within 10 years.
Plus, you’re increasing your pool of tax-free money. This could be especially helpful for whichever of you survives the other, because after the year of death, the survivor probably won’t be able to file as “married filing jointly” anymore and would be subject to less favorable single taxpayer status.
Consult a tax pro, however. Roth conversions can push you into a higher tax bracket and increase your Medicare premiums. A “laddered” approach, or a series of partial Roth conversions over several years, may be advisable.