Dear Liz: I have $160,000 in a 403(b) retirement plan and I’m 70. I know I have to start taking required minimum distributions (RMDs) at age 73. Should I transfer the funds to a Roth IRA or can I start taking the RMD from the 403(b) and leave the remainder to grow?
Answer: You can take your RMDs from the 403(b). Transferring the money to a Roth IRA would be known as a conversion, and that could make the entire amount taxable.
Late-in-life conversions can make sense if future RMDs will push you into a higher tax bracket than you are now, or if you’re willing to pay the tax bill to provide future tax-free income to your heirs. (Roths don’t have RMDs, so the account can be passed intact to your beneficiaries, who will usually have 10 years to drain the account.) Conversions can have other consequences, such as raising Medicare premiums, so a tax pro’s advice should be sought before proceeding.
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