retirement

# Beware the Impact on RMDs When Reversing a Roth IRA Conversion

## The amount of money that you recharacterize needs to be added back to your traditional IRA balance for year-end 2016 to calculate your 2017 required minimum distribution.

Question: I’m 73 years old, and I converted money in a traditional IRA to a Roth IRA in 2016. I know that I have until October 16 to undo the conversion and get back the money I paid in taxes. Will recharacterizing the IRA affect my required minimum distribution for 2017?

Yes. Your required minimum distributions are based on your traditional IRA balance at the end of the previous year. When you convert traditional IRA money to a Roth, that money is removed from future RMD calculations (Roth IRAs are not subject to RMDs for the original owner).

However, if you take advantage of the opportunity to undo the conversion -- and retrieve the tax you paid when you reported the converted amount as income -- you restore the amount to your traditional IRA, and that increases your RMD. “If all or a portion of the conversion is reversed, an adjustment to the December 31, 2016, balance needs to be made, thus increasing the 2017 RMD,” says Jeffrey Levine, chief retirement strategist for Ed Slott and Co., an IRA consulting firm.

Say, for example, you had \$150,000 in traditional IRAs and converted \$50,000 to a Roth in 2016. In that case, your 2017 RMD would be based on the \$100,000 remaining in your traditional IRAs as of December 31, 2016, and your life-expectancy factor. If you’re still 73 at the end of 2017, that factor would be 24.7. Dividing that into \$100,000 sets your RMD for the year at \$4,048.58.

However, if you undo the conversion (see How to Unwind a Roth Conversion for more information about recharacterizing), the amount you recharacterize needs to be add to the 2016 year-end balance of your IRA for purposes of figuring your 2017 RMD.

You can use our RMD calculator to help figure how much money you must withdraw, or you can find the life-expectancy factor based on your age in Appendix B of IRS Publication 590-B. Most people use Table III, unless their sole beneficiary is a spouse who is more than 10 years younger. See 10 Things Boomers Must Know About RMDs from IRAs for more information about RMDs. Also see 6 Steps to Cutting Your Taxes When You Start Taking RMDs.

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