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I have a Beneficiary IRA and have been reinvesting the RMD from it each year by putting it in a Roth IRA of my own. My understand is I can take the withdrawal any time during a calendar year and have until April 15th the following year to make the Roth IRA contribution to the other account.

My question is whether there's are any financial advantages to doing this as-soon-as-possible or waiting until the last minute allowed to do each step. Obviously as soon as I make the contribution to my own Roth IRA the money is effectively "locked-up" and no longer available for any other use, so that's not what I'm asking.

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  • I do this in December but I don't have a good reason. Feels best to delay as long as possible.
    – minou
    Dec 21, 2021 at 13:05

2 Answers 2

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RMD's are simply a timeframe in which you must make withdrawals. When and why you do is a personal decision that depends on your own financial goals. There is no right or wrong way.

Remember that withdrawals from inherited IRAs are considered ordinary income by the IRS and will be taxed accordingly, regardless of whether you keep the cash or reinvest it into another asset like your personal IRA.

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  • I was thinking it might be advantageous to leave it in the Beneficiary IRA as long as possible allowing it accrue as much tax deferred earnings there as possible — but I suppose if all I'm planning on doing it moving to another IRA which also offers tax deferment on earnings, it's a moot point.
    – martineau
    Dec 21, 2021 at 0:21
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    You can't "move it to another IRA". You are taking an RMD, and will pay taxes on that income in the year you take it.
    – stateazure
    Dec 21, 2021 at 0:34
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    I fully understand the tax obligations of the RMD disbursement itself. I meant taxes on possible future earnings from it.
    – martineau
    Dec 21, 2021 at 0:37
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There is something fishy in the OP's story. As stateazure'a answer points out, withdrawals from Inherited IRAs are ordinary income to the recipient and taxed accordingly. Equally importantly, RMDs cannot be rolled over into a Roth IRA. So, any money that is contributed to a Roth IRA is a Roth IRA contribution independent of whether the RMD was taken or not, and must follow the rules for Roth IRA contributions; namely, an upper limit on the amount that can contributed, having compensation (salary, wages, bonuses, self-employment income, commissions on sales etc) at least as large as the contribution, and AGI less than an upper limit that depends on whether the OP or OP's spouse is covered by a pension plan or 401(k) plan at work. All this is completely independent of the RMD from the Inherited IRA except insofar as the RMD increases the AGI and this increase might reduce or entirely prohibit a Roth IRA contribution for the year in question.

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  • I meant rolling the money over figuratively into an established Roth IRA—not in any sort of technical sense. I understand the money withdrawn is considered income and is taxable, as well as the rules for Roth contributions plus the fact that there's no immediate tax deferment of the funds that are put in to them.
    – martineau
    Dec 21, 2021 at 9:16

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